Pfizer (PFE) And Wyeth (WYE): A Merger As A Way To Fire People

Companies, even really big ones with hundreds of thousands of employees, can only fire so many people. At some point the core functions like accounting and marketing need enough personnel to keep operations running. The layoff machine runs out of fuel.

Pfizer (PFE) has already fired thousands of people. Most recently it cut 800 researchers and 2,400 sales personnel. The drug firm probably would have been more brutal if it could have been.

Pfizer is now in merger negotiations with its one of its big pharm peers, Wyeth (WYE). The transaction would be done as a $60 billion buyout of Wyeth. According to The Wall Street Journal, "If completed, a deal could create billions in cost savings through the combination of back-office operations, research and development, sales and manufacturing."

In the Pfizer deal not much is being said about the best strategic reasons for mergers which are that they should increase overall sales. Pfizer and Wyeth already have development teams working on drugs which may not even be tested for two or three years. Putting the two corporations together is not likely to make the combined operation grow faster. It is not like putting two search engine companies together because having more market share allows the new firm to raise prices as it delivers more customers than any of its competition.

M&A has become a tool for fighting the recession. Putting Fiat with Chrysler together is an excuse for letting tens of thousand of people go. The same would be true with a Pfizer deal to pick up Wyeth.These mergers do more to destroy the overall economy than they do to create new products and services which might help restart demand from customers and haul the economy out of its hole.

Mergers have become the tool of tearing the heart out of a recovery.

Douglas A. McIntyre