Pfizer alleges breach of contract in suit

New York-based Pfizer Inc. filed a lawsuit against Warner-Lambert and American Home Products Corp., both based in Philadelphia, on Nov. 23, 1999, alleging that Warner-Lambert breached its contractual obligations to Pfizer outlined in a standstill agreement between Pfizer and Warner-Lambert. The complaint also alleges that American Home Products wrongfully interfered with Pfizer's contractual arrangement with Warner-Lambert by inducing Warner-Lambert's breach.

This lawsuit is in addition to the action filed by Pfizer on Nov. 4, 1999, which charges that the break-up fee and lock-up option granted to American Home Products by Warner-Lambert are illegal and invalid.

In a response to the new complaint, Warner-Lambert said, "Pfizer continues to rush to the courthouse for relief, but persists in failing to present the true underlying facts or cogent claims." The statement continued: "Pfizer consistently misstates the actual terms of the parties' standstill agreement. Pfizer repeatedly claims that the standstill agreement is at an end if 'Warner and a third party reach an agreement with respect to a business combination.' But this is not what the agreement says. The agreement is specific that a business combination with a third party does not result in any termination unless 'such third party is the acquiring party.' … Pfizer knows – and we know – that our business combination with American Home Products is a 'merger of equals' with no acquiring party."

Pfizer did state that the lawsuit did not seek to change the agreement it has with Warner-Lambert over Lipitor,® the cholesterol-lowering drug the two companies copromote. "The Lipitor partnership is a very valuable asset for both companies and their respective shareholders," said Lou Clemente, executive vice president of Pfizer. "Neither party should take action to harm that asset."

Counterclaim

The possibility that the Lipitor agreement would remain unchanged grew slimmer on Nov. 30, 1999, however, when Warner-Lambert filed a counterclaim in Delaware Chancery Court against Pfizer seeking a declaratory judgement that would entitle Warner-Lambert to terminate the Lipitor agreements.

"We are asking the court to confirm that Pfizer's intentional disregard of its contractual obligations has given us the right to bring this relationship to an end and reclaim all rights to Lipitor for Warner-Lambert and our shareholders," said Lodewijk J.R. de Vink, chairman, president and chief executive officer of Warner-Lambert. "Pfizer cannot commit flagrant breaches of contract as it has, and expect to continue to receive the fruits of this relationship."

Pfizer characterized the counterclaim as part of "a series of desperate defensive measures designed to deny its shareholders the opportunity to consider an offer from Pfizer that … represents a 20% premium to Warner-Lambert shareholders over the price in the American Home Products merger."

The counterclaim was looked upon favorably by American Home Products, which said in a statement that it was "prepared to work with Warner-Lambert to provide a mechanism, consistent with our existing merger agreement, for fairly allocating to Warner-Lambert's shareholders additional value ultimately created by recovering the marketing rights to Lipitor."

Pending a determination by the court, the Lipitor agreements continue to be in effect. However, if the court rules in Warner-Lambert's favor, the contract would be terminated and Warner-Lambert would have no obligation to make payments to or share revenues with Pfizer with respect to Lipitor.

AHP stays its course

Regardless of what happens in the courts, American Home Products said it would continue to approach the merger as if Pfizer's offer never took place. "We have a deal," said Lowell Weiner, assistant vice president of public relations for American Home Products. "We're proceeding as if the deal will go through. We are fully committed to the [Warner-Lambert] merger, and we intend to complete the transaction."

Although American Home Products said it was too soon to comment on what would happen to its sales force if the deal with Warner-Lambert went through, the company did explain why the merger is a good fit.

"We believe that by combining American Home Products and Warner Lambert's pharmaceutical and over-the-counter businesses and our powerful product pipelines, AmericanWarner will deliver more value to Warner-Lambert's shareholders than they can get from Pfizer's unsolicited proposal," said John Stafford, chairman, president and chief executive officer of American Home Products. "We also believe that Pfizer's conditional offer for Warner-Lambert is illusory and not capable of being completed."

Stafford continued: "The customary termination fee provisions of our merger agreement with Warner-Lambert, and our reciprocal option agreements, are valid, binding and enforceable. We also think Pfizer's lawsuit challenging our transaction with Warner-Lambert is without merit or substance, and we will defend it vigorously." PR