Jan. 26 (Bloomberg) -- Pfizer Inc., the world’s biggest drugmaker, will buy Wyeth for about $68 billion after failing to reduce its dependence on the cholesterol pill Lipitor with new drugs from its own research labs.

The deal, the largest pharmaceutical acquisition in almost a decade, is a cash-and-stock transaction valued at $50.19 a share, 29 percent more than Wyeth’s closing price on Jan. 22, the day before talks were reported, the companies said today in a statement. Pfizer also will halve its quarterly dividend to 16 cents a share, fire 15 percent of the combined company’s workforce, or 19,000 people, and close five factories.

Five banks pledged $22.5 billion in loans to support Pfizer’s bid. The New York-based drugmaker gains the depression pill Effexor and pneumonia vaccine Prevnar to offset some of the $12 billion in sales it begins losing in 2011 when Lipitor, which generates a quarter of the company’s revenue, gets generic competition. The cuts will help Pfizer save $4 billion on top of the $2.8 billion in spending it has trimmed since 2007.

“Pfizer is spending $7.5 billion a year in research and producing almost nothing, and now it has to buy Wyeth,” said Michael Krensavage, founder of Krensavage Asset Management in New York, in a telephone interview today. “If its pipeline were producing, it wouldn’t need to buy Wyeth.”

Maintain Earnings

The deal will help Pfizer maintain its 2008 sales and profit levels through 2012, when generic copies of Lipitor come on the market, Pfizer Chief Financial Officer Frank D’Amelio said. That compares with a 16 percent drop without the deal, Seamus Fernandez, a Leerink Swann & Co. analyst in Boston, said in a research report.

Pfizer fell $1.80, or 10 percent, to $15.65 at 5:11 p.m. in New York Stock Exchange composite trading, the biggest decline since Dec. 4, 2006. Wyeth, based in Madison, New Jersey, fell 35 cents to $43.39.

The dividend cut rankles Pfizer investors holding shares for their 8.1 percent yield, said Krensavage. Pfizer’s credit rating may be downgraded by Moody’s Investors Service and Standard & Poor’s because of the added debt, analysts for the agencies said.

“A lot of people own Pfizer for the dividend and this is a pretty dramatic cut,” Krensavage said. “I would have favored all debt because the equity is very expensive.”

Wyeth shares haven’t increased more because some investors are skeptical the deal will close given the frozen credit markets, said David Moskowitz, an analyst with Caris & Co., today in a telephone interview.

Five Banks

The acquisition will be financed by Bank of America Corp., Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co., Pfizer said. Morgan Stanley and Evercore Partners Inc. are counseling Wyeth. Each bank will put in $4.5 billion.

Along with the $22.5 billion in borrowing, Pfizer will pay $22.5 billion in cash and about $23 billion in Pfizer shares, the company said. Wyeth’s shareholders will own 16 percent of the combined company.

Wyeth has withdrawn from talks to acquire Dutch vaccine- maker Crucell NV, the Leiden, Netherlands-based company said in a statement on Hugin newswire today without giving a reason.

“Wyeth is without a doubt the perfect partner for Pfizer,” Pfizer Chief Executive Officer Jeffrey Kindler said today in a conference call with analysts. He said Pfizer’s “confidence in our ability to transition through an acquisition like this is very high.”

Kindler will lead the combined companies and Wyeth Chief Executive Officer Bernard Poussot, who ran the company for a year, will step down after the transition, Pfizer spokesman Ray Kerins said. The deal ends the 83-year history of Wyeth, built on success of products including Preparation H hemorrhoid treatment and Anacin pain reliever.

French Basketball

Poussot, a former basketball player from France, said he was surprised when Kindler phoned him last summer about a potential deal because Wyeth wasn’t looking to be acquired.

After months of talks with Kindler, who he described as a very determined negotiator, Poussot said he and Wyeth’s board realized combining the two companies could make Wyeth “the company we dreamed to become.”

Wyeth has been investing in biotechnology and vaccines for three decades and is now the third-largest biotechnology company, behind Amgen Inc. and Genentech Inc., Poussot said. Wyeth also is developing 10 treatments for Alzheimer’s disease, which made it an attractive target for Pfizer, said Poussot.

Breakup Fee

Under the agreement, Wyeth can force Pfizer to complete the transaction unless the buyer’s debt rating falls below a certain threshold, allowing its lenders to get out of their financing commitments, said two people familiar with the matter. In that case, Wyeth would get a $4.5 billion termination fee. Pfizer’s Kerins declined to discuss the breakup fee.

Pfizer and Wyeth combined now have about 130,000 employees. The merger creates a company with annual revenue that’s about 55 percent more than the world’s second-biggest drugmaker, London- based GlaxoSmithKline Plc, which has said it will focus on smaller purchases in the year ahead.

Effexor was Wyeth’s top-selling drug in 2007 with $3.79 billion in sales. Prevnar generated $2.4 billion. Wyeth plans to seek U.S. approval this year for a new version of Prevnar that would fight six additional strains of pneumonia, continuing its dominance over competitors.

‘Smooth Earnings’

Wyeth’s “comparative lack of a patent cliff could help smooth earnings,” said Tim Anderson, an analyst with Sanford C. Bernstein in New York, in a research report.

Pfizer also said today that fourth-quarter earnings sank 90 percent because of a $2.3 billion charge to settle U.S. allegations it illegally promoted the Bextra painkiller for unapproved uses. Pfizer said it sees 2009 earnings per share, excluding one-time items, of $1.85 to $1.95, missing analysts’ estimates of $2.50.

This is the biggest pharmaceutical industry acquisition since 2000, when Glaxo Wellcome Plc acquired SmithKline Beechman Plc for $76 billion.

The Wyeth transaction carries promise and peril for Pfizer, analysts and investors said in interviews since talks were first reported by the Wall Street Journal Jan. 23.

While it would keep Pfizer’s earnings unchanged when patents expire, it creates a pharmaceutical behemoth that will be very difficult to grow, Anderson said in his report. To achieve that, Pfizer would need to cut 70 percent of Wyeth’s research, marketing and administrative costs, he said in his report.

“I think it’s just something that slows the downward spiral,” said Jon Fisher, who manages a $1.5 billion portfolio at Fifth Third Asset Management in Minneapolis, in a telephone interview today. “The combination of the two takes the huge dips out of each company’s earnings profile and smoothes things out. It by no means creates a growth company.”

Experimental Drugs

Pfizer also gets partial rights to the experimental Alzheimer’s disease treatment bapineuzumab, which some analysts have said could generate $8 billion in peak annual sales by 2015 if approved. That compound, though, has been tarnished by side effects after an early stage study showed it increased swelling in the brain, and may not work in about half of all Alzheimer’s patients who carry a certain gene.

Pfizer would also inherit Wyeth’s legal woes. Wyeth is facing claims by more than 10,000 women in the U.S. who contend its hormone replacement drugs Prempro and Premarin cause breast cancer. Wyeth also has set aside $21 billion to resolve a decade of litigation over its fen-phen diet pill, pulled off the market in 1997 after being linked to heart damage and lung disease.

Research Failure

The Wyeth bid reflects Kindler’s failure to offset oncoming generic competition to Lipitor, the world’s best-selling medicine, using jobs cuts, new research priorities and rising sales in developing countries. It marks a return to the mega- merger strategy of former chief Hank McKinnell, replaced by Kindler in July 2006 after the stock had fallen 40 percent over the previous five years.

McKinnell, while being groomed as CEO in 2001, was instrumental in Pfizer’s $115 billion acquisition of Warner- Lambert Co., the developer of Lipitor. After becoming chief, he then paid $60 billion in 2003 for Pharmacia Corp. and its pain- killing medicines Celebrex and Bextra.

While Lipitor became the world’s best-selling medicine, Bextra was pulled from the market in 2005 and Celebrex lost almost half its sales following the recall of the similar-acting Vioxx. The back-to-back purchases left Pfizer with a bloated research operation, excess manufacturing capacity and too few products in development to replace those going off patent, investors and analysts have said.

“We are in a much stronger position that we were two years ago and we have gotten there faster than I might have hoped,” Kindler said in a conference all with analysts. “Our confidence in our ability to transition through an acquisition like this is very high.”

To contact the reporters on this story: Shannon Pettypiece in New York at spettypiece@bloomberg.net; Tom Randall in New York at trandall6@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net

Last Updated: January 26, 2009 17:32 EST