Wyeth Shareholders: Thanks For Nothing Pfizer!

Wyeth (NYSE: WYE) shareholders aren't exactly jumping for joy today following Pfizer's (NYSE: PFE) "$68 billion" takeover. In fact, shares of Wyeth are 1% lower this afternoon on the news, after rising 12.6% Friday on speculation of a deal.

Because it is partially a stock deal, Wyeth shareholders are now victim to the fate of Pfizer's miserable stock, which today is getting absolutely beaten on the news and the stick-it-to-you dividend and guidance cut. Many investors bought Pfizer for the "safe" dividend, which was yielding a cool 7%. But with the mega-deal today, Pfizer is slashing that dividend in half bringing the yield down to 3.5%. In addition, Pfizer issued a negative profit view for 2009. The company sees EPS of $1.85-$1.95 for the year, which was well below the Street consensus of $2.49.

Based on the terms of the deal, Wyeth holders will get $33 per share in cash and 0.985 of a share of Pfizer common stock for each share they own. Based on Pfizer's current price of $15.68, the deal is currently worth $48.45 to Wyeth shareholders. Wyeth shares are currently trading at $43.38, indicating a pretty wide arbitrage spread of about 10%. This wide spread is likely due to the continued uncertainty in M&A land, which was highlighted today by Dow Chemical's (NYSE: DOW) balk on the Rohm & Haas (NYSE: ROH) deal. Pfizer is financing the deal with $22.5 billion from a consortium of banks. Today on the conference call, one analyst asked if any of the TARP banks were part of the consortium and if this will cause trouble due to the fact that the merger will create more layoffs.

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