Pfizer to buy Wyeth

Pfizer announced today that they are buying Wyeth for $68B. This values Wyeth shares at $50.19/ea (the deal will involve Pfizer paying $33 and 0.985 Pfizer shares for every Wyeth share). Normally with an acquisition announcement, shares of the company being acquired trades to pretty close to the acquisition price. This deal is a bit more complex, so Wyeth shares will trade to an amount relative to the Pfizer stock amount. It's 9:54AM, and WYE is at $44.75 (up $1.01). PFE is at $16.27. So if you buy WYE now, you will get $33 per share, plus 0.985 of PFE, which at current pricing will equal to $49.03. Seems like a pretty automatic gain right?



The only issue I have with this is that investors will try to correct for this gap. Most of the time, the buying company's stock drops since an acquisition is costly. This drop will then affect the end result of the acquisition since part of the deal is 0.985 shares of PFE. That's a variable that you can't control. So if one takes the time to write out an equation and solve it, you could probably come up with an equation that would tell you how high PFE prices would need to be relative to WYE's price to see if it's worthwhile to buy before the acquisition. But for now, it seems like an automatic gain of close to 10%.