Jan. 26 (Bloomberg) -- Pfizer Inc. is close to sealing a $68 billion acquisition of rival drugmaker Wyeth in what would be the biggest U.S. merger in almost three years. An agreement may be announced as soon as today.

The companies’ boards met yesterday to consider the bid, according to people familiar with the talks. Wyeth shareholders would get $50.19 a share, including $33 in cash and 0.985 Pfizer shares, one of the people said. That’s a 29 percent premium to Wyeth’s price on Jan. 22, before the talks became public.

Pfizer Chief Executive Officer Jeffrey Kindler, 53, will lead the combined company, two people said. Pfizer, the world’s biggest drugmaker, gains the depression treatment Effexor and pneumonia vaccine Prevnar, and its annual sales would rise 46 percent to about $70 billion. That would help the New York-based company offset some of the $12 billion in revenue it begins losing in 2011, when Pfizer’s top-selling Lipitor cholesterol pill faces generic competition.

“Pfizer’s labs weren’t able to create enough drugs to replace the Lipitor revenue,” said Les Funtleyder, an analyst with Miller Tabak & Co. in New York, in a Jan. 23 interview. “As that became more obvious, Pfizer felt like they had to do something. They could have decided to let Lipitor go away and become smaller. They are choosing the route of getting bigger.”

Pfizer’s acquisition of Madison, New Jersey-based Wyeth, if approved, would be the largest in almost five years in the pharmaceutical industry.

Bank Advisers

Among the banks advising Pfizer and arranging a loan package to finance part of the purchase price are Bank of America Corp., Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co., said people with knowledge of those banks’ roles. Morgan Stanley and Evercore Partners Inc. are counseling Wyeth, the people said.

The $50.19-a-share price values the transaction at $66.8 billion for Wyeth’s outstanding shares as of Oct. 31. The figure will be slightly higher when Wyeth employee stock options are converted into stock when the transaction is completed.

Pfizer spokesman Ray Kerins and Wyeth spokesman Dan McIntyre weren’t able to be reached for comment.

Investors gave the transaction an early vote of confidence. Pfizer’s shares rose 24 cents, or 1.4 percent, to $17.45 on Jan. 23 when the talks were first reported by the Wall Street Journal. Wyeth jumped 12.7 percent, or $4.91, to $43.74. In German trading today, Wyeth rose the equivalent of $5.84 to $49.38, while Pfizer fell the equivalent of 59 cents to $16.86.

Crucell Talks

Wyeth withdrew from talks to buy Crucell NV, a Dutch developer of biotechnology medicines against AIDS, rabies and Ebola, the Netherlands-based company said in a statement today. The stock plunged 9.6 percent to 15.51 euros in Amsterdam trading on Jan. 23 after the Pfizer approach was reported, reducing Crucell’s market value to 1.02 billion euros ($1.31 billion).

The combined company will have 130,000 employees, and its annual revenue would be 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 cover six additional strains of pneumonia, continuing its dominance over competitors.

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.

Promise and Peril

The last big pharmaceutical industry acquisition came in August 2004, when Paris-based Sanofi-Synthelabo SA acquired Aventis SA of Strasburg, France, for $64.4 billion to create Sanofi-Aventis SA, France’s largest drugmaker. A Pfizer-Wyeth agreement would exceed Roche Holding AG’s $43.7 billion offer for the remainder of Genentech Inc., announced in July.

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

It could keep Pfizer’s earnings unchanged at $2.69 a share from 2010 to 2015, when patents expire on some of Pfizer’s biggest products, Anderson said in his report. That compares to a 68 percent drop without the acquisition, to $1.40 in 2015.

To achieve that, Pfizer would need to cut 70 percent of Wyeth’s research, marketing and administrative costs, Anderson said.

Legal Woes

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 has also 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.

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.

Bextra, Celebrex

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.

When Kindler arrived, he preached a different gospel. He fired more than 15,000 workers over two years and closed five research centers. He then reorganized scientists into smaller units, started an independent biotechnology center in California, and stopped work on more than 100 experimental treatments to focus on those with the highest profit potential.

Praise and Concern

Those efforts, though, failed to staunch stock declines fed by investor concerns about Lipitor’s patent expiration. The company lost more than a third of its value in New York Stock Exchange composite trading since Kindler took the helm, compared with a 19 percent drop in the Standard & Poor’s 500 Pharmaceutical Index.

The Wyeth acquisition has drawn both praise and concern from analysts and investors since the talks were revealed.

Michael Obuchowski at First Empire Asset Management of Hauppauge, New York, said smaller potential acquisitions, such as Foster City, California-based Gilead Biosciences Inc., the biggest maker of HIV treatments, would cost less and better enhance Kindler’s plans to make Pfizer leaner and more creative.

“The string of large acquisitions in the past never benefited shareholders,” Obuchowski said. “Acquiring another slow-growing company turns Pfizer into a solid, slow-growing company that won’t grow any better than Pfizer is right now. It’s a company in restructuring acquiring a company in restructuring.”

‘Capable Guy’

Wyeth also has “plenty of lingering legal and patent expiration problems of its own,” said Carol Levenson, an analyst with Gimme Credit LLC in Chicago, in a Jan. 23 note to clients. “We don’t see why Wyeth is a solution to Pfizer’s problems.”

Bruce Berkowitz, chief investment officer at Fairholme Capital Management LLC, Pfizer’s seventh largest investor as of Sept. 30, said the Wyeth move could help Kindler reinvigorate shareholder interest in Pfizer.

“I’m confident that he is the guy capable of making a good decision -- unlike his predecessor who appears to have overpaid on previous acquisitions,” said Berkowitz, who is based in Miami, in a Jan. 24 interview. “He has a better appreciation for putting two large organizations together, and Pfizer, as an organization, has never been better in terms of a new invigorated corporate culture.”

To contact the reporter 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 06:07 EST