DTC Processes $64 Billion Merger, And All Goes According to Plan
It was a high-profile merger involving two pharmaceutical giants, the New York Stock Exchange, The Bank of New York Mellon, Computershare and The Depository Trust Company (DTC). With the merger, $64 billion in cash and stock was transferred to DTC customers and then subsequently to thousands of individual shareholders.
The merger of Pfizer, Inc., and Wyeth was announced in January 2009, when Pfizer proposed purchasing Wyeth in a cash-and-stock deal. In October, DTC helped execute the merger’s massive payment transfer.
“We believe it was the largest merger we’ve ever handled and probably the single largest payment of any kind made in DTC’s history. And it all went according to plan,” said Lori-Ann Trezza, DTCC vice president, Asset Services.
Announcements
DTC was involved in the deal from the very start. Minutes after the companies filed papers with the Securities and Exchange Commission (SEC) in January, DTCC distributed a preliminary announcement on the merger to customers and the industry. In June, DTC followed up with a subsequent announcement when the prospectus was filed with the SEC.
Crunch time came on October 15, the last day Wyeth shares traded on the New York Stock Exchange and the day DTC prepared to distribute cash and shares of Pfizer stock to its participants that held Wyeth shares. Under the merger agreement, Wyeth shareholders received $33 and 0.985 shares of Pfizer stock for each Wyeth share they held.
Chill out
“The first thing we do in this type of transaction is to get control of all our inventory [Wyeth stock], which means we put a ‘chill’ on all security deposits two or three days before the actual merger date. That way no shares are withdrawn from or transferred into our FAST program,” said John Sarris, DTCC supervisor, Asset Services.
FAST is DTCC’s Fast Automated Securities Transfer program, which enables agents to provide electronic custody, transfer, deposit and withdrawal services. “But we handled this case differently. Working with both The Bank of New York Melon and Computershare, we agreed to accept DWACs up to the merger date since we were guaranteed payment on these securities.”
The DWAC function – Deposit or Withdrawal at Custodian – enables customers to transmit electronic requests to DTC, which allows their transfer agent custodian to deposit or withdraw shares from their DTC account.
A balancing act
Working with Wyeth’s transfer agent, The Bank of New York Mellon, DTC and the bank had to make certain they had the same total of FAST shares to be exchanged in the merger. “It’s basically a balancing act,” said Walter Gutmann of the Special Issuance Unit at The Bank of New York Mellon. “There are always last-minute DWACs that have to be accounted for…so there are always adjustments to be made in the final FAST total. But we arrived at the right balance at the right time.”
Once the FAST balance – roughly 1.3 billion shares – was agreed upon, DTC worked with Computershare, which coordinated the transfer of funds, the issuance of Pfizer shares and the debiting of Wyeth shares. In this instance, Computershare served as both exchange agent and transfer agent for Pfizer.
Team effort
“Computershare and DTC worked very closely on this deal,” said Matthew Attubato, project manager – Corporate Actions, Computershare. He said there were a lot of adjustments at the end of the process. “We needed to coordinate the confirmation of the final outstanding balance, which included several last-minute DWACs that DTC notified us of. It was certainly a team effort all around.”
Attubato said it was one of the largest mergers Computershare has handled and that it was believed to be the 11th largest merger on record. “From Computershare’s standpoint, this merger went very smoothly. This includes both the interaction with DTC and with the 35,000 or so registered shareholders. Additionally, Computershare is one of the few transfer agents that has the infrastructure and expertise to execute a transaction like this within the specified timeframe and regulatory requirements,” he added.
On October 16, DTC received the merger proceeds and allocated them to their participants. “We received a cash payment of $42 billion, plus 1.3 billion common shares of Pfizer valued at $22 billion and distributed the cash and shares to our clients the same day,” said Alan Hutton, DTCC managing director, Operations.
As Trezza observed, thanks to the work by the industry and DTC to dematerialize securities and centralize their custody, transactions like the Pfizer/Wyeth merger today are completed in a seamless, streamlined and automated fashion.
“While we don’t treat any transaction as ‘business as usual’,” said Trezza, “we like to think we have it down to a science.” @