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The announcement of a merger between the Indian arms of global pharmaceutical giants Pfizer and Wyeth led to an upbeat mood among investors, causing the stocks to touch their upper circuit on Wednesday.
Pfizer Ltd, the Indian arm of global drug major Pfizer, has announced its plan to merge with Wyeth Ltd, Wyeth’s Indian subsidiary. In 2009, US-based Pfizer had acquired its rival drug maker Wyeth for $68 billion.
Following the announcement, shares of both companies rose. While Wyeth was locked in an upper circuit after the stock gained 20 per cent, shares of Pfizer hit a 52-week high on the BSE. Wyeth’s stock rose by Rs 130, or 20 per cent, on BSE, with the stock locked in upper circuit at Rs 776.
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The stocks of both companies rose due to news of the merger, interim dividend and the likely benefits from operating as a single entity. “Traders have bet on the stocks in the hope of a favourable merger ratio and a high interim dividend,” said an analyst at a domestic brokerage. The Wyeth stock hit the upper circuit on speculation the merger ratio would be 2:1. On the operational front, the company could benefit, its field force would be expanded and the merged entity would have a wider coverage area. In addition to savings on marketing costs, there could also be synergies in back-end sourcing and research and development, analysts believe.
Wyeth Ltd has informed the BSE to consider the merger with Pfizer, a meeting of the company’s board of directors will be held on November 23.
“In this market, consolidation of any kind is obviously a good thing. Having said that, not all sections of the market are optimistic. Sector analysts are concerned about the impact on investors, while traders are using this opportunity. Investors of Wyeth are likely to benefit more from this deal than those of Pfizer,” said Prakash Diwan, director, Altamount Capital Management.
Experts and analysts don’t foresee a major impact on operations. “As compared to domestic majors with sales revenue of Rs 3,000-8,000 crore, the new merged entity is unable to reach into the top league and we are not seeing any major impact with the said merger,” said Sarabjit Kaur Nagra of Angel Broking.
For 2012-13, Wyeth Ltd had posted revenue of Rs 678 crore and a net profit of Rs 130 crore, while Pfizer Ltd recorded revenue of Rs 1,050 crore and a profit of Rs 503 crore.
“The growth of these two companies isn’t outperforming and multinational companies don’t have much influence in the Indian market,” Nangra said.
While high dividends could prop the stocks, the operational performances of the two companies weren’t all that good in the September quarter, largely due to the new pricing policy. High raw material costs and lower realisations led to Wyeth’s margins falling a steep 1,270 basis points to 11 per cent during the quarter. Imports of a key drug (Prevenar 13) also hit the company’s financials, given the depreciating rupee. Pfizer, too, reported a drop in margins, owing to high raw material costs; it imports 35-40 per cent of its raw materials. The company’s sales underperformed the overall market, increasing just 4.8 per cent due to pricing and trade-related issues.
“Wyeth has been keeping a low profile for a while; not many products were launched in the recent past,” said a pharmaceuticals analyst.
