In your opinion, did Warner Lamberts board act in the interests of their shareholders in this transaction? Do you think it is important for Pfizer to get the support of Warner Lamberts board in this transaction? Please illustrate your answers in detail.

When there is a bidding competition, is the offer with the highest bidding price necessarily the best? Please illustrate your answers in detail.

Pfizer's Acquisition of Warner-Lambert In 1996 Pfizer and Warner Lambert (Warner) agreed to co-market worldwide the cholesterol-lowering drug Lipitor, which had been developed by Warner. The combined marketing effort was extremely successful with combined 1999 sales reaching $3.5 billion, a 60% increase over 1998. Before entering into the marketing agreement, Pfizer had entered into a confidentiality agreement with Warner that contained a standstill clause that, among other things, prohibited Pfizer from making a merger proposal unless invited to do so by Warner or until a third party made such a proposal. In late 1998, Pfizer became aware of numerous rumors of a possible merger between Warner and some unknown entity. William C. Steere, chair and CEO of Pfizer, sent a letter on October 15, 1999, to Lodeijk de Vink, chair and CEO of Warner, inquiring about the potential for Pfizer to broaden its current strategic relationship to include a merger. More than 2 weeks passed before Steere received a written response in which de Vink expressed concern that Steere's letter violated the spirit of the standstill agreement by indicating interest in a merger. Speculation about an impending merger between Warner and American Home Products (AHP) came to a head on November 19, 1999, when an article appeared in the Wall Street Journal announcing an impending merger of equals between Warner and AHP valued at $58.3 billion. The public announcement of the agreement to merge between Warner and AHP released Pfizer from the standstill agreement. Tinged with frustration and impatience at what Pfizer saw as stalling tactics, Steere outlined in the letter the primary reasons why the proposed combination of the two companies made sense to Warner's shareholders. In addition to a substantial premium over Warner's current share price, Pfizer argued that combining the companies would result in a veritable global powerhouse in the pharmaceutical industry. Furthermore, the firm's product lines are highly complementary, including Warner's over-the-counter drug presence and substantial pipeline of new drugs and Pfizer's powerful global marketing and sales infrastructure. Steere also argued that the combined companies could generate annual cost savings of at least $1.2 billion annually within 1 year following the completion of the merger. These savings would come from centralizing computer systems and research and development (R&D) activities, consolidating more than 100 manufacturing facilities, and combining two headquarters and multiple sales and administrative offices in 30 countries. Pfizer also believed that the two companies' cultures were highly complementary. In addition to the letter from Steere to de Vink, on November 4, 1999, Pfizer announced that it had commenced a legal action in the Delaware Court of Chancery against Warner, Warner's directors, and AHP. The action sought to enjoin the approximately $2 billion termination fee and the stock option granted by Warner-Lambert to AHP to acquire 14.9% of Warner's common stock valued at $83.81 per share as part of their merger agreement. The lawsuit charged that the termination fee and stock options were excessively onerous and were not in the best interests of the Warner shareholders because they would discourage potential takeover attempts. On November 5, 1999, Warner explicitly rejected Pfizer's proposal in a press release and reaffirmed its commitment to its announced business combination with AHP. On November 9, 1999, de Vink sent a letter to the Pfizer board in which he expressed Warner's disappointment at what he perceived to be Pfizer's efforts to take over Warner as well as Pfizer's lawsuit against the firm. In the letter, he stated Warner-Lambert's belief that the litigation was not in the best interest of either company's stockholders, especially in light of their co-promotion of Lipitor, and it was causing uncertainty in the financial markets. Not only did Warner reject the Pfizer bid, but it also threatened to cancel the companies' partnership to market Lipitor. Pfizer responded by exploiting a weakness in the Warner Lambert takeover defenses by utilizing a consent solicitation process that allows shareholders to change the board without waiting months for a shareholders' meeting. Pfizer also challenged in court two provisions in the contract with AHP on the grounds that they were not in the best interests of the Warner Lambert shareholders because they would discourage other bidders. Pfizer's offers for Warner Lambert were contingent on the removal of these provisions. On November 12, Steere sent a letter to de Vink and the Warner board indicating his deep disappointment as a result of their refusal to consider what Pfizer believes is a superior offer to Warner. He also reiterated his firm's resolve in completing a merger with Warner. Not hearing anything from Warner management, Pfizer decided to go straight to the Warner shareholders on Nov 15, in an attempt to change the composition of the board and to get the board to remove the poison pill and break-up fee. In the mid-November proxy statement sent to Warner shareholders, Pfizer argued that the current Warner Lambert board has approved a merger agreement with American Home, which provides 30% less current value to the Warner-Lambert stockholders than the Pfizer merger proposal. Moreover, Warner shareholders would benefit more in the long run in a merger with Pfizer, because the resulting firm would be operationally and financially stronger than a merger created with AHP. Pfizer also argued that its international marketing strength is superior in the view of most industry analysts to that of American Home and will greatly enhance Warner-Lambert's foreign sales efforts. Pfizer stated that Warner Lambert was not acting in the best interests of its shareholders by refusing to even grant Pfizer permission to make a proposal. Pfizer also alleged that Warner Lambert is violating its fiduciary responsibilities by approving the merger agreement with American Home in which AHP is entitled to a termination fee of approximately $2 billion. Pressure intensified from all quarters including such major shareholders as the California Public Employees Retirement System and the New York City Retirement Fund. After 3 stormy months, Warner Lambert agreed on February 8, 2000, to be acquired by Pfizer for $92.5 billion, forming the world's second largest pharmaceutical firm. Although they were able to have the Warner poison pill overturned in court as being an unreasonable defense, Pfizer was unsuccessful in eliminating the break-up fee and had to pay AHP the largest such fee in history. The announced acquisition of Warner Lambert by Pfizer ended one of the most contentious corporate takeover battles in recent memory. Pfizer's Acquisition of Warner-Lambert In 1996 Pfizer and Warner Lambert (Warner) agreed to co-market worldwide the cholesterol-lowering drug Lipitor, which had been developed by Warner. The combined marketing effort was extremely successful with combined 1999 sales reaching $3.5 billion, a 60% increase over 1998. Before entering into the marketing agreement, Pfizer had entered into a confidentiality agreement with Warner that contained a standstill clause that, among other things, prohibited Pfizer from making a merger proposal unless invited to do so by Warner or until a third party made such a proposal. In late 1998, Pfizer became aware of numerous rumors of a possible merger between Warner and some unknown entity. William C. Steere, chair and CEO of Pfizer, sent a letter on October 15, 1999, to Lodeijk de Vink, chair and CEO of Warner, inquiring about the potential for Pfizer to broaden its current strategic relationship to include a merger. More than 2 weeks passed before Steere received a written response in which de Vink expressed concern that Steere's letter violated the spirit of the standstill agreement by indicating interest in a merger. Speculation about an impending merger between Warner and American Home Products (AHP) came to a head on November 19, 1999, when an article appeared in the Wall Street Journal announcing an impending merger of equals between Warner and AHP valued at $58.3 billion. The public announcement of the agreement to merge between Warner and AHP released Pfizer from the standstill agreement. Tinged with frustration and impatience at what Pfizer saw as stalling tactics, Steere outlined in the letter the primary reasons why the proposed combination of the two companies made sense to Warner's shareholders. In addition to a substantial premium over Warner's current share price, Pfizer argued that combining the companies would result in a veritable global powerhouse in the pharmaceutical industry. Furthermore, the firm's product lines are highly complementary, including Warner's over-the-counter drug presence and substantial pipeline of new drugs and Pfizer's powerful global marketing and sales infrastructure. Steere also argued that the combined companies could generate annual cost savings of at least $1.2 billion annually within 1 year following the completion of the merger. These savings would come from centralizing computer systems and research and development (R&D) activities, consolidating more than 100 manufacturing facilities, and combining two headquarters and multiple sales and administrative offices in 30 countries. Pfizer also believed that the two companies' cultures were highly complementary. In addition to the letter from Steere to de Vink, on November 4, 1999, Pfizer announced that it had commenced a legal action in the Delaware Court of Chancery against Warner, Warner's directors, and AHP. The action sought to enjoin the approximately $2 billion termination fee and the stock option granted by Warner-Lambert to AHP to acquire 14.9% of Warner's common stock valued at $83.81 per share as part of their merger agreement. The lawsuit charged that the termination fee and stock options were excessively onerous and were not in the best interests of the Warner shareholders because they would discourage potential takeover attempts. On November 5, 1999, Warner explicitly rejected Pfizer's proposal in a press release and reaffirmed its commitment to its announced business combination with AHP. On November 9, 1999, de Vink sent a letter to the Pfizer board in which he expressed Warner's disappointment at what he perceived to be Pfizer's efforts to take over Warner as well as Pfizer's lawsuit against the firm. In the letter, he stated Warner-Lambert's belief that the litigation was not in the best interest of either company's stockholders, especially in light of their co-promotion of Lipitor, and it was causing uncertainty in the financial markets. Not only did Warner reject the Pfizer bid, but it also threatened to cancel the companies' partnership to market Lipitor. Pfizer responded by exploiting a weakness in the Warner Lambert takeover defenses by utilizing a consent solicitation process that allows shareholders to change the board without waiting months for a shareholders' meeting. Pfizer also challenged in court two provisions in the contract with AHP on the grounds that they were not in the best interests of the Warner Lambert shareholders because they would discourage other bidders. Pfizer's offers for Warner Lambert were contingent on the removal of these provisions. On November 12, Steere sent a letter to de Vink and the Warner board indicating his deep disappointment as a result of their refusal to consider what Pfizer believes is a superior offer to Warner. He also reiterated his firm's resolve in completing a merger with Warner. Not hearing anything from Warner management, Pfizer decided to go straight to the Warner shareholders on Nov 15, in an attempt to change the composition of the board and to get the board to remove the poison pill and break-up fee. In the mid-November proxy statement sent to Warner shareholders, Pfizer argued that the current Warner Lambert board has approved a merger agreement with American Home, which provides 30% less current value to the Warner-Lambert stockholders than the Pfizer merger proposal. Moreover, Warner shareholders would benefit more in the long run in a merger with Pfizer, because the resulting firm would be operationally and financially stronger than a merger created with AHP. Pfizer also argued that its international marketing strength is superior in the view of most industry analysts to that of American Home and will greatly enhance Warner-Lambert's foreign sales efforts. Pfizer stated that Warner Lambert was not acting in the best interests of its shareholders by refusing to even grant Pfizer permission to make a proposal. Pfizer also alleged that Warner Lambert is violating its fiduciary responsibilities by approving the merger agreement with American Home in which AHP is entitled to a termination fee of approximately $2 billion. Pressure intensified from all quarters including such major shareholders as the California Public Employees Retirement System and the New York City Retirement Fund. After 3 stormy months, Warner Lambert agreed on February 8, 2000, to be acquired by Pfizer for $92.5 billion, forming the world's second largest pharmaceutical firm. Although they were able to have the Warner poison pill overturned in court as being an unreasonable defense, Pfizer was unsuccessful in eliminating the break-up fee and had to pay AHP the largest such fee in history. The announced acquisition of Warner Lambert by Pfizer ended one of the most contentious corporate takeover battles in recent memory