AmericanWarner Would House Nearly $5 Bil. Consumer Health Unit

Warner-Lambert's consumer products/OTC business would have a more natural home with American Home Products than with Pfizer.

Two businesses of similar size - W-L and AHP's consumer health/nutritionals segments reported 1998 sales of $2.7 bil. and $2.2 bil., respectively - the companies bring to the table complementary brands that span a variety of OTC and dietary supplement categories.

Consumer health represents a sizeable portion of each companies' total revenues, 16% for AHP and 26% for Warner-Lambert. Pfizer's 1998 consumer health care sales of $442 mil. accounted for only 3% of total revenues and have been steadily decreasing from 4% in 1997 and 5% in 1996. W-L's Listerine franchise alone posted $430 mil. in 1998 sales.

While Pfizer has a small core of OTC franchises, the company has been dismantling the front-end side of its business, opting to concentrate instead on its prescription drug activities.

Under the AmericanWarner name, the combined consumer health firm would offer a portfolio of well-known brands such as Advil, Robitussin, Centrum, Listerine, Benadryl, Sudafed, Halls, Zantac 75 and Nix. Having recently divested Bain de Soleil to Schering-Plough, Pfizer's remaining OTC lines include BenGay, Visine, Cortizone, Desitin and Rid.

AHP and Warner-Lambert's decision to create "AmericanWarner," the result of a 50/50 merger between the firms, was announced Nov. 4. However, the agreement terminated a prior standstill provision and freed Pfizer to make an offer for Warner-Lambert, which it did the same day.

Valued at $82.4 bil., Pfizer's buyout bid represents a 12% premium over the proposed AmericanWarner merger, which was valued at $72 bil. Pfizer is offering 2.5 Pfizer shares for each outstanding W-L share.

Pfizer's offer is conditioned on the termination of a $2 bil. "break-up fee" written into the agreement between W-L and AHP. Warner-Lambert and AHP also would have to drop a "stock option which could prevent Pfizer (but not AHP) from utilizing pooling of interest accounting for this transaction," Pfizer said.

Pfizer has filed suit in Delaware chancery court to enjoin AHP and Warner-Lambert from enforcing the break-up provisions. W-L says it will defend its actions in the litigation, which it deems without merit.

If AmericanWarner comes to pass, the resulting consumer health products giant would have a few decisions to make with overlapping products in the cough/cold and allergies, stomach remedies and dietary supplement categories (¹ (Also see "AmericanWarner Nutritionals Would Have Research, Money, Marketing Savvy" - Pink Sheet, 8 Nov, 1999.)).

Warner-Lambert's Zantac 75 and AHP's Axid AR compete in the stomach remedy category, although Zantac 75 is the second-ranking branded H2 while Axid has struggled to compete in the crowded market.

In the cough/cold and allergy product segment, W-L markets Actifed, Benadryl, Benylin, Sinutab and Sudafed, while AHP's Whitehall-Robins Healthcare division has Dimetapp, Dristan and Robitussin. W-L's Halls and Celestial Seasonings, and AHP's Robitussin lines all feature cough drops, though they are only one component of the Robitussin brand.

Additionally, AHP markets Preparation H and W-L the Anusol and Tucks brands, all treatments for hemorrhoids.

W-L's strengths in the oral and skin care markets with its Listerine, Listermint and Lubriderm brands are not duplicated by AHP, which has its own forte in the pain relief area with Advil, Anacin and Orudis KT. AHP's Wyeth-Ayerst division also manufactures private label infant formula.

AHP's Exec VP Robert Essner would head the AmericanWarner consumer products division with AHP Chairman and CEO John Stafford chairing the new company. W-L Chairman and CEO Lodewijk de Vink would succeed Stafford upon his retirement 18 months after the deal closed, solving the succession problem posed by Stafford's planned departure.

The consumer health business would be located at W-L's headquarters in Morris Plains, N.J., while the main headquarters would rest down the road at AHP's campus in Madison, N.J.

The other possible scenario, a Pfizer/Warner-Lambert combo, could result in the divestiture of some of W-L's consumer health care brands if Pfizer remains committed to its focus on prescription pharmaceuticals, which generated 87% of its sales in 1998. Pfizer and Warner-Lambert have a significant pre-existing relationship founded on their collaboration on the cholesterol-lowering agent Lipitor.

If the Warner-Lambert consumer brands were retained, the existing W-L management likely would continue its oversight at the division level. Pfizer's recent sale of Bain de Soleil, however, would appear to cast doubt on whether the parent company would opt to maintain a heightened consumer products presence.

One area in which Pfizer and W-L converge is their emphasis on Rx-to-OTC switches. In its 1998 10-K filing with the Securities & Exchange Commission, Pfizer pledged to "redeploy resources" from personal care and "minor brands" to switch candidates. W-L also has been active in this area, most recently with Zantac 75.

Warner-Lambert lost the marketing rights to potential switch drugs Zovirax and Beconase with the dissolution of the firm's joint venture with Glaxo Wellcome in August 1998, although the chances of either product achieving OTC status appear slim.

W-L and Pfizer have few redundancies within their OTCs, with the exception of their respective Nix and Rid lice treatments. Considering that together the brands hold 62% of the pediculicide market, it is likely one would be divested. Although both companies market a mouthwash, Listerine's gingivitis indication differs significantly from Plax' plaque-fighting claim.

The outlook for W-L's execs is quite different under the Pfizer buyout scenario. Pfizer Chairman William Steere is nearing retirement in 2001, but Chief Operating Officer Henry McKinnell is in line to succeed him.