Both Pfizer ($PFE) and Allergan ($ACT) have a history of doing "transformational" deals--and those can come along with serious layoffs. So now that they've joined hands in a $160 billion merger agreement, is there reason to expect any different?
The companies are eyeing more than $2 billion in cost cuts over the first three years after closing, they said Monday, with just under two-thirds of that coming from SI&A, just under one-third coming from R&D, and the remainder coming from COGS. Forty percent of those savings will squeezed by the end of the first full year after closing, with 60% coming by the end of the second year.
As Goldman Sachs ($GS) analyst Jami Rubin pointed out on a call with investors, though, that $2 billion target seems low in comparison with other deals. The reason, according to Pfizer CFO Frank D'Amelio? "These are two companies that are run very effectively already," with not a lot of fat to trim, he said. And beyond that, there's not a lot of overlap between the two portfolios.
|Pfizer CFO Frank D'Amelio|
As he told listeners, though, "we'll get every dollar of synergy that's available to us," and if that involves surpassing the $2 billion mark, then "when we get it, we'll tell you where" it's coming from, he said.
Pfizer certainly has a history of wielding the ax in the wake of large tie-ups. Take Wyeth, a 2009 Pfizer buy that D'Amelio spotlighted in discussion his company's experience with large integrations. The year the deal closed, the New York pharma giant announced 20,000 job cuts, and thousands more have come since. Warner-Lambert and Pharmacia buyouts before that came along with painful layoffs, too.
And Allergan, the product of a number of recent deals, has plenty of its own experience in that department. Back when it was Actavis, it announced it would let go 30% of its U.S. sales force after closing its Warner Chilcott transaction--a tally that amounted to 350 jobs. And after later cementing its Forest Labs buy, it dismissed 200 employees who had worked for the company in the St. Louis, MO, area.
Most recently, though, it's been Irvine, CA, feeling the pain. After Actavis and Allergan agreed to join forces--adding 11,500 employees to the 25,000 or so Actavis already had--the company cut loose 577 workers there. And that's not to mention the 500 Irvine staffers who lost their jobs as part of Allergan's cost-cutting effort to dodge hostile predator Valeant ($VRX).
As far as California goes, though, a couple of key Allergan businesses--aesthetics and eye care--will be staying put even as the company works to integrate with its merger partner on the opposite coast.
That decision is "not about protecting people," Allergan CEO Brent Saunders said on the call. "It's about keeping the best people in the right location to drive value in the future."
- read the deal announcement
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