Shares of Pfizer Ltd and Wyeth Ltd surged sharply in stock markets on Monday not only because of the merger of the two pharma MNCs but the generous dividend payout announced by both ahead of the merger.

While the ratio of merger of seven shares of Pfizer for every 10 shares of Wyeth made the merger skewed slightly in favour of the latter, what worked for Pfizer was the interim dividend payout of Rs 360 per share compared with Rs 145 per share announced for Wyeth shareholders before the merger becomes effective.

Shares of Pfizer hit a 52-week high of Rs 1,644.70 before easing to Rs 1,603.80, a gain of Rs 167.25, at close on the NSE with a trading volume of 6.45 lakh shares. Wyeth closed at Rs 924.90, a gain of Rs 110.90 or 13.62 per cent. The trading volume surged to 13.32 lakh shares at the close. The stock came close to its 52-week high of Rs 985 that it had hit in the NSE on November 30 last yearAn investment of 10 shares in Wyeth at current levels would cost the investors about Rs 9,250 plus costs associated with the acquisition. For this, the investors would get in return a dividend of Rs 1,450 which is a pretty reasonable short-term yield. In addition, they would get 7 shares of Pfizer post merger worth about Rs 11,220 at today’s closing price.

For any new Pfizer investor, a similar investment in 10 shares would cost about Rs 16,030 plus brokerages. But the investor would get a dividend return of Rs 3,600, which will be paid on December 17.

Key risks

However, a key downward risk to the investment is that these stocks might correct to some extent post-dividend payout. Moreover, as a defensive investment, pharma stocks have run up quite a bit and the potential for further price rise in these counters in the near term may be limited. Besides, as the merger is still about nine months away, both these stocks might be in some ferment though they command good brand value. Aijaz Tobaccowalla, MD of Pfizer India and Wyeth India, said on Saturday while announcing the merger that this would pave the way for the creation of “a single Pfizer brand’. Pfizer would issue nearly 15.9 million new shares to Wyeth India shareholders as part of the merger deal.

In the quarter ending Sept. 30, 2013, Pfizer’s total income was Rs 298.97 crore and net profit was Rs 69.59 crore. The EPS was Rs 23.32 (share face value Rs 10). It had huge reserves of Rs 1664.58 crore as at the end of March 2013. Wyeth had a total turnover of Rs 171.37 crore in Q2 of current fiscal and the net profit was Rs 18.38 crore. The EPS was Rs 8.09 and the company reserves were Rs 544.08 crore at the end of last FY.

Published on November 25, 2013