How Will The Mylan Merger Affect Pfizer’s Shares Going Forward?

by | Jul 30, 2019 | Markets

Pfizer plans to divest part of its business and merge with the drug company Mylan.

Over the weekend, the Wall Street Journal reported that a deal was in the works between the pharmaceutical company Pfizer and the generic drugmaker Mylan. And on Monday, Pfizer confirmed the news when it released its quarterly earnings report. 

Pfizer plans to spin off its off-patent drug business Upjohn and merge it with Mylan to form a new public company. Upjohn sells well-known drugs like Viagra and Lipitor.

How will the merger affect Pfizer?

Initially, Wall Street seemed to embrace the news of the potential merger but this seemed to change after the merger had been confirmed. Pfizer’s shares fell slightly after being downgraded by Morgan Stanley while Mylan’s rose more than 14%. 

Here are the two biggest issues most shareholders have with the potential merger — and why they aren’t that big of a deal.

Pfizer’s shares will be diluted

The biggest issue most investors have with the merger is how it will affect Pfizer’s shares. Upjohn accounts for about 20% of Pfizer’s revenue so if that part of the company is divested, this makes Pfizer’s valuation less attractive going forward.  

However, under the terms of the deal, Pfizer shareholders will owe 57% of the new company and Mylan shareholders will own 43%. So yes, current Pfizer shareholders will see their shares diluted. But they will also own 57% of an entirely new company. 

Investors are concerned about any involvement with Mylan

Mylan’s stock has struggled over the past couple of years. The company is best known for the 2016 uproar over skyrocketing costs of the Epi-Pen. Mylan is currently involved in a civil lawsuit and its shares are down 42% from a year earlier. 

However, much of the blame for the Epi-Pen ordeal was directed at Mylan’s CEO Heather Bresch. Under the terms of the new deal, she will step down and be replaced by a Pfizer executive. 

Summary

Ultimately, it’s hard to know how any merger will affect a company going forward. But all signs point to this being a good deal for most companies. And the fact that Pfizer’s shares are only slightly down indicates that investors will come around the merger.