After a 3-month takeover battle, Pfizer Inc. on February 7 agreed to buy rival Warner-Lambert Co. for $90 billion in stock, creating the No. 1 US drug maker and the second largest in the world. The deal brings together the industry's two fastest-growing companies to form a pharmaceutical powerhouse generating annual revenues of $28 billion and with a research and development budget of $4.7 billion in 2000.

The proposed deal ends a separate plan for Morris Plains, New Jersey-based Warner-Lambert to merge with Madison, New Jersey-based American Home Products Corp. (AHP) for $58 billion. AHP will receive a $1.8 billion payment for the failure of its deal with Warner-Lambert, the largest break-up fee ever paid and nearly as much as AHP earned, excluding charges, in 1999 and in 1998. AHP, which makes the popular pain reliever Advil and the Premarin line of female hormone replacement drugs, will drop its Warner-Lambert stock options, clearing the way for Pfizer to use pooling-of-interests accounting.

Pfizer expects to close the deal by midyear and expects cost savings of $1.6 billion by the end of 2002, before one-time items, on a compounded basis. Pfizer said its net income was expected to grow at an average rate of 25% annually through 2002. The deal between Pfizer and Warner-Lambert comes amid rapid consolidation in the world pharmaceutical industry, spurred by potential cost savings and the need to spend ever-higher sums on research and development.