Procter & Gamble's Speculative Acquisition of Warner-Lambert and American Home Products Weighs on Share Price

Strategic Insights -

Procter & Gamble's (PG) stock price took a hit on Friday as speculation swirls around a potential acquisition of Warner-Lambert (WLA) or American Home Products (AHP), or both. Analysts believe a deal is in the works, but question the benefits for P&G. The company's conservative track record makes such a move unlikely, with some analysts pointing to Pfizer (PFE) as a more likely suitor for Warner-Lambert.

Key Takeaways:

  • Procter & Gamble's shares lost $9.31 1/4, falling to $103.25, on speculation of an acquisition of Warner-Lambert or American Home Products.
  • Analysts believe a deal is in the works, but question the benefits for P&G, citing its conservative track record.
  • Hemant Shah, an analyst at HKS & Co., said the rumored deal is not an attempt to boost the price of a sale of Warner-Lambert to Pfizer, and that P&G would have knocked the rumor down if that were the case.
  • American Home's biggest negative in P&G's eyes is American Home's legal issues surrounding its diet drug combination fen-phen.
  • The more likely scenario is Pfizer acquiring Warner-Lambert and Procter & Gamble acquiring American Home, according to Shah.

Statistics:

  • Procter & Gamble's stock price fell $9.31 1/4 to $103.25 on Friday.
  • MCI WorldCom (WCOM) lost $1.75 to $41.62 1/2 on market-leading volume of almost 55 million shares.
  • Geron (GERN) surged $7 to $31.56 1/4.
  • MCI WorldCom loses $1 billion annually in data revenue from AOL.

Sources:

  • "Wall Street believes that there's a deal in the works and isn't sure of the benefits," said Barry Hyman, senior equity analyst at Ehrenkrantz King Nussbaum in New York. [Source: CNBC]
  • "P&G is not that stupid to allow its name to be used just to boost numbers for Warner-Lambert. ... P&G would have knocked the rumor down," said Hemant Shah, analyst at HKS & Co. [Source: CNBC]
  • "It may be questions about the financial performance of the company," said Eric Melloul, analyst with Argus Research. [Source: CNBC]