NEW YORK -- Pfizer Inc. today made a surprise $82.4 billion offer for Warner-Lambert, just hours after Warner-Lambert agreed to merge with American Home Products in what would be the biggest drug industry merger ever.
Pfizer offered $96.40 per share for each share of Warner-Lambert. The $71 billion merger agreement with American Home Products valued Warner-Lambert at $83.55 a share.
Pfizer officials said they had previously told Warner-Lambert officials of their interest in making a deal.
Pfizer and Warner-Lambert have co-marketed the blockbuster cholesterol lowering drug Lipitor since 1997. Pfizer said that agreement prohibited the two companies from merging. But the agreement was voided by Warner-Lambert's decision to merge with American Home.
The combined Pfizer-Warner Lambert would have revenues of $28 billion. American Home and Warner-Lambert would have combined sales of $26 billion.
American Home Products declined to comment.
Pfizer is the maker of the impotence-treatment drug Viagra and the blood pressure-control drug Norvasc and the antidepressant Zoloft. Along with Warner-Lambert, it is one of the industry's fastest-growing companies.
Warner-Lambert makes Certs mints, Schick razors and the blockbuster cholesterol drug Lipitor. While Warner-Lambert developed and manufactures Lipitor, the drug is co-marketed with Pfizer.
American Home is behind the household products Advil, Robitussin and Chapstick and the top-selling hormone replacement drug Premarin, the world's most prescribed medicine.
But it is struggling as a result of lawsuits and product safety questions and has been seeking a merger partner after two previous deals collapsed.
If its merger with Warner-Lambert is completed, the new company will be called AmericanWarner Inc.
Regardless of which suitor winds up with Warner-Lambert, the combined company would be the world's largest maker of prescription drugs.
Pfizer ranks fourth in worldwide pharmaceutical sales, American Home Products is seventh and Warner-Lambert is 15th. The industry is led by Novartis and Merck, according to 1998 sales.
By joining forces, drug companies can spread the cost of developing new drugs, while increasing the sales force needed to market old and new products.
Drug companies are under pressure from consumers and Congress to slow the rising prices of their medicines.
Last year, wholesale prices for 50 prescriptions commonly filled by the elderly rose by 6.6 percent even though the overall inflation rate that year was just 1.6 percent, according to the study released Wednesday by the consumer group Families USA.
Some analysts expected a bidding war between Pfizer and American Home Products.
"I would be surprised if the bid Pfizer put on the table was the last one," said Len Yaffe, an analyst with Banc of America Securities. "We think Pfizer has an advantage."
He said the Pfizer bid "makes imminent sense" because of the partnership in marketing Lipitor.
An American Home-Products merger with Warner-Lambert had won favorable reviews on Wall Street.
"This puts them into the big leagues in pharmaceuticals and consumer health products," said Linda Miller, portfolio manager for the John Hancock Global Health Sciences Fund, which owns about 150,000 shares of each company. "It should accelerate their growth rate and their earnings performance. I don't see anything that's not for a shareholder to like in this one."
The American Home Products merger with Warner-Lambert is structured as a stock swap. For each share in Warner-Lambert investors own, they will receive 1.4919 shares of American Home, worth about $83.55. Each company will name 10 members of the new board of directors.
American Homes' top executive, John Stafford, 62, would be chairman of the combined firm for 18 months. Warner-Lambert's Lodewijk J.R. de Vink, 54, will be CEO immediately and will assume the chairman's position after Stafford steps down.
The two companies have similar cultures and their headquarters are just a few miles apart in New Jersey. American Home is in Madison and Warner-Lambert is in Morris Plains. The new company will be based in American Home's facility. The pharmaceutical business will be based in Radnor, Penn.
American Home's operating profits have been sluggish this year as the company has faced a rash of safety and legal troubles with its drugs. Last month, the company had to yank its childhood diarrhea vaccine from the market after it was linked to severe bowel obstruction in infants.
Also last month, the company reached a $4.75 billion settlement with thousands of women who said they were injured by the diet drugs Redux and Pondimin.
Despite its troubles, American Home has a plethora of new drugs, and others awaiting regulatory approval. Those include the sleeping pill Sonata, the ulcer pill Protonix and a childhood vaccine to prevent pneumonia and ear infections.
In contrast, Warner-Lambert's laboratory is relatively bare, analysts say. Its next big hope is a drug to treat epilepsy and other central nervous system disorders.
Warner-Lambert, though, does have Lipitor, which is expected to garner $6 billion in sales in 2002.
American Home tried twice to find a partner last year, but negotiations fell apart with SmithKline Beecham PLC and later with Monsanto Co.
Warner-Lambert also has been looking for partners to expand its business. Earlier this year, the company paid $2.1 billion to acquire Agouron Pharmaceuticals, which makes drugs for cancer, viral diseases and eye diseases.