Market doubts Pfizer, Wyeth deal; Dow gets court action from Rohm & Haas; Quiksilver up on sale talk

By Cristal Cody

New York, Jan. 26 -Wyeth shares fell in the face of a $68 billion cash-and-stock offer on Monday from Pfizer Inc. as the market becomes gun-shy to mega deals getting done in this environment, an analyst told Prospect News.

Investors didn't have to look far for examples. On Monday, Rohm & Haas Co. filed a lawsuit to force Dow Chemical Co. to go through with its takeover. While Rohm & Haas contends that the two-day closing requirement for the acquisition ends on Tuesday, one analyst said the clock might not have started ticking yet.

Also on Monday, shares of Quiksilver, Inc. rose on talk the company may sell off brands or the entire business.

Meanwhile, the markets were mixed Monday. The Dow Jones Industrial Average lost 45.24 points, or 0.56%, to close at 8,077.56.

The S&P 500 index gained 4.62 points, or 0.56%, to finish at 836.57, and the Nasdaq Composite index rose 12.17 points, or 0.82%, to 1,489.46.

Pfizer, Wyeth deal

Wyeth shares slid 35 cents, or 0.80%, to close at $43.39 on Monday in spite of Pfizer's offer of $50.19 a share, a 14.7% premium to Wyeth's closing stock price on Friday.

The deal includes $33.00 in cash and 0.985 of a share of Pfizer common stock per Wyeth share.

Pfizer shares fell $1.80, or 10.32%, to close at $15.65.

Pfizer also announced a plunge in fourth-quarter earnings and plans to cut costs that include shedding 8,000 jobs and lowering shareholder dividends.

"Right now, the market has a pretty big spread of what Wyeth would be paid and what shares are trading at. There are some concerns in the market that the deal may not close," Jon Lecroy, an analyst with Natixis Bleichroeder, told Prospect News.

Investors also are concerned about whether Wyeth shareholders will approve the deal.

"As recently as a year ago, the stock was trading at $60.00 or close to it. The longer-term shareholders are still probably under water [on the sale]," Lecroy said.

The closing is subject to approval from Wyeth shareholders, antitrust clearances and the banks completing the financing of $22.5 billion in debt for Pfizer to do the takeover.

The deal is expected to close late in the third quarter or in the fourth quarter of 2009.

Jeffrey Kindler, chairman and chief executive officer of Pfizer, said in an investors conference call that the company has "learned a lot from our prior acquisitions."

Prior mergers caused turmoil with employee morale and productivity, he said.

"But what we've done in the past two years is strengthen this company and culture [and] that prepares us to do this transaction," Kindler said.

Bernard Poussot, chairman, president and CEO of Wyeth, said Pfizer's interest caught them by surprise.

"It became apparent that Jeff was determined to find the best match for Pfizer to lead the organization to higher levels," Poussot said. "With my board and extensive reviews of our projections and what this combination would do, we realized the proposal would be attractive and a way to accelerate our vision to get [our vaccines] to market faster."

Dow may renegotiate

Dow said Monday it plans to make good on the $78.00-a-share offer it made for Rohm & Haas in July but blamed the hesitation on the failed joint venture with Petrochemical Industries Co. of Kuwait.

Rohm & Haas filed the lawsuit Monday in Delaware Chancery Court to force Dow to close on the $15.4 billion buyout.

"The failure of the K-Dow venture does not provide Dow with a basis for refusing to close," according to the lawsuit. "Dow's obligations under the merger agreement are not in any way conditioned on consummation of the K-Dow joint venture. In fact, Dow's obligation to complete the merger is not conditioned on financing of any kind."

Andrew Liveris, chairman and CEO of Dow, said in a statement that the company's "long term strategy remains unchanged and the proposed acquisition of Rohm & Haas is consistent with this strategy."

Dow has received all regulatory and other clearances to close the acquisition. Under terms of the agreement, the deal must close within two business days after all regulatory approvals are cleared.

If Dow eventually closes the deal, it will have to pay a $3.3 million ticking fee for every day past the scheduled closing date. If the deal does not close, Dow will not pay the ticking fee.

Frank Mitsch, an analyst with BB&T Capital Markets, said the start time of the ticking fee may come down to legal interpretation.

"Last Friday, the FTC gave antitrust clearance to the possible acquisition under the condition that Dow sell certain businesses to an 'FTC-approved acquirer' due to overlap in certain markets," Mitsch said in an investors note on Monday.

"While the assets deemed necessary to be sold account for less than the magical figure of $1.3B, we believe the 48-hour requirement to close may or may not have been triggered, with one interpretation waiting until after the 30-day public comment period."

The latest turn of events "suggests that the deal is still up for renegotiation," Mitsch said.

"At this point, it is uncertain as to which news will hit the tape first - whether Dow's acquisition of ROH will in fact go through (and at what terms) or if Brett Favre will return to the Jets next season. We are banking on the latter."

Rohm & Haas shares closed down $8.72, or 13.25%, at $57.10 Monday.

Dow's stock fell $1.09, or 7.61%, to $13.24.

Quiksilver sale talk

Shares of Quiksilver rose on Monday after a report that the outdoor apparel maker could sell its DC Shoes brand to VF Corp. or even the entire company to Nike Inc.

Shares soared 70 cents, or 46.36%, to close at $2.21. The stock has traded as high as $10.67 and as low as 80 cents over the past year.

Quiksilver representatives did not return a message for comment.

Todd Slater, an analyst with Lazard Capital Markets LLC, said Monday in an investors note that a deal would make strategic sense. Slater has a $6.00 price target on the stock.

Quiksilver is "trading at a depressed valuation and we see a high likelihood of a transaction given the company's liquidity challenges," he said.

"Given that the health and attractiveness of [Quiksilver's] brands is overshadowed by ongoing financial and liquidity troubles, we believe a good solution would be a friendly transaction with stronger strategic players," he said.

Quiksilver's cancellation of an appearance at an industry conference on Jan. 15 could be a signal, Slater said.

Also, "VFC's announcement last week creating a newly formed Action Sports division containing complementary brands like Vans and Reef could be a precursor."

Mentioned in this article:

Dow Chemical Co. NYSE: DOW

Pfizer Inc. NYSE: PFE

Quiksilver, Inc. NYSE: ZQK

Rohm & Haas Co. NYSE: ROH

Wyeth NYSE: WYE

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