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PFIZER OFFERING "UNBUNDLED STOCK UNITS" FOR UP TO 20%

Executive Summary

PFIZER OFFERING "UNBUNDLED STOCK UNITS" FOR UP TO 20% of the company's outstanding shares, Pfizer announced in a Dec. 5 press release. Under the proposed plan, each share tendered will be exchanged for an unbundled stock unit consisting of three securities - an equity appreciation certificate, an incremental dividend depository preferred share and a bond. The equity appreciation certificate, which expires in 2019, entitles the holder to purchase one share of common stock for an anticipated cash exercise price of $150 plus the new preferred share. Holders of the preferred stock will receive dividends equal to any excess of regular common stock cash dividends declared for any quarter over the first quarter 1989 dividend. The principal amount of each bond is expected to be $150, the release notes, which is equal to the expected exercise price of the equity appreciation certificate. The bond matures in 2019, the same date the equity appreciation certificate expires and will bear quarterly interest payments equal to the dividend to be declared in the first quarter of 1989. "None of the bonds, incremental dividend depository preferred shares or equity appreciation certificates will have voting rights, except in certain limited circumstances," Pfizer noted. The exchange offer covers a maximum of about 33 mil. of the company's 165 mil. shares outstanding. Should more than 33 mil. shares be tendered, the company would accept the shares for exchange on a pro rata basis. The deal is contingent on acceptance of a minimum of 24.75 mil. shares, or about 15%, for exchange. Pfizer's action may have been prompted by a sense of its own vulnerability. As recently as last May, in response to takeover rumors, the company told analysts that raising the $15-$20 bil. it might take to purchase Pfizer would be "almost impossible" ("The Pink Sheet" May 23, p. 5). The $25 bil. recently raised for the leveraged buyout of RJR Nabisco suggests otherwise. The unbundled stock unit plan allows Pfizer to reduce the number of voting shares, and thereby limit the company's exposure to raiders, without having to dig into its cash reserves. The firm's Oct. 2 balance sheet shows about $770 mil. in cash and securities and an additional $815 mil. in short-term loans made via the Pfizer International Bank.
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