Two-decade Pfizer mission pays off for Gueggenheim’s deal king

By Pamela Barbaglia and Mike Stone

LONDON/NEW YORK (Reuters) – Alan Schwartz knows how to play a long game.

The executive chairman of boutique investment bank Guggenheim Partners spent almost 20 years cultivating Pfizer <PFE.N> boss Ian Read as a client.

His strategy paid off handsomely when Guggenheim was named lead adviser for one of the biggest deals in history – Viagra-maker Pfizer’s $160 billion acquisition of Botox-maker Allergan <AGN.N>.

Schwartz, 65, had been working with Read since 2013 to find a European-registered company with which U.S. firm Pfizer could combine and shift its headquarters to a country with a lower tax rate, so-called inverting.

But their relationship stretches far further back, to the late 1990s, when Schwartz was a banker at Bear Stearns and Read was an executive working his way up at Pfizer, according to three people who have worked with Schwartz.

Such ties with key executives partly explain why small investment boutiques like Guggenheim can sometimes trump full-service investment banks such as Bank of America <BAC.N> for advisory roles on mega-deals.

Getting close to people in business development is very much part of the playbook of Schwartz, who has also spent the last two decades working closely with the likes of Verizon <VZ.N>, Walt Disney <DIS.N> and Cablevision <CVC.N>.

He works with operational managers on a long-term basis – without doing deals – to discuss strategy and cultivate trust, according to the sources. Then, when they reach positions of power and an M&A opportunity comes up, an advisory role is the prize.

Guggenheim, whose partners rarely speak publicly, declined to comment.

‘CODEWORD: PONY’

The dealmaker was first noticed by Pfizer executives in the late 1990s, when he started presenting them with dossiers of possible takeover targets, according to one of the sources.

In 2000 Pfizer decided to buy Warner Lambert, a company Schwartz was advising. Since then the U.S company has used Schwartz on many of their deals.

He led negotiations on Pfizer’s $15 billion acquisition of Hospira this year, and before that he advised on their $60 billion takeover of Pharmacia in 2003. He also played a key role on the $16.6 billion sale of Pfizer’s consumer healthcare unit to Johnson & Johnson in 2006 and helped the firm on the $2.4 billion sale of its Capsugel pill unit in 2011.

The close ties he had cultivated with Pfizer and Read paid off most spectacularly recently when Guggenheim was named lead adviser on the Allergan deal – which ranks as the second-biggest M&A transaction ever.

Schwartz was the last CEO of Bear Stearns before it was sold to JPMorgan Chase <JPM.N> in 2008, and the following year he joined Guggenheim, which is based in New York and Chicago.

Wall Street veterans who know Schwartz describe him as a masterful adviser who uses his strategic insight and dealmaking skills, rather than wining and dining, to cultivate company executives.

“He has an ability to immerse himself in the details of a company’s business, the competitive landscape and a potential transaction while simultaneously framing these issues in the big picture as a consigliere to CEOs,” said Flexis Capital Managing Partner Louis Friedman, a former Bear Stearns investment banker who worked with Schwartz for years.

Schwartz and other bankers working for Pfizer in its negotiations with Allergan would refer to the merger project as “Pony” in written communications to keep its identity secret, according to one of the sources. His main counterpart on the Allergan side was Steve Frank, co-head of global healthcare investment banking at JPMorgan.

Pfizer’s acquisition of Allergan will be financed mostly with Pfizer’s stock, so Guggenheim was not handicapped by its limited ability to provide debt financing compared with bigger rivals.

In addition to Guggenheim as top adviser, Goldman Sachs Group <GS.N>, Centerview Partners Holdings LLC and Moelis & Co <MC.N> also advised on the deal.

TEAMWORK

Although Schwartz’s previous attempt at inverting Pfizer had been unsuccessful, it led to him hiring an investment banker, a move that helped cement Guggenheim’s relationship with the drugmaker.

Schwartz advised Pfizer last year when it approached Britain’s AstraZeneca Plc <AZN.L> about a 70-billion-pound ($106 billion) bid, only for it to be snubbed. Also advising Pfizer however was Bank of America Corp’s executive vice chairman of corporate and investment banking, Fares Noujaim, who Schwartz subsequently recruited to Guggenheim.

Noujaim, 52, is a Lebanese-American banker who had moved up through the ranks at Bear Stearns. In 2008, before moving to Bank of America, he was vice chairman of Bear Stearns’ board of directors while Schwartz was the bank’s CEO.

Noujaim’s departure last year cost Bank of America its close relationship with Pfizer as the bank was no longer included in its advisory line-up.

Pfizer and Bank of America declined to comment.

Guggenheim was launched in 1999 by Peter Lawson-Johnston Sr, a great-grandson of gold mining magnate and New York museum founder Solomon Guggenheim. He injected $30 million of family money to fund the firm’s operations in investment management, investment banking and insurance services.

But it was only when Schwartz joined that the firm focused on building its advisory business and winning major investment banking assignments. For each deal, Schwartz typically surrounds himself with a team of five to 10 people.

Guggenheim was at the bottom of U.S. M&A league table rankings between 2010 and 2012, but entered the top 10 in 2013 with 17 deals.

The Pfizer deal moves Guggenheim to No. 12 from 18 in the worldwide M&A league table. It ranked 45 this time last year.

Guggenheim and Pfizer’s three other advisers will share between $125 million and $150 million in fees on the Allergan deal, according to a separate source familiar with the matter.

“This deal is only the latest step in a series of long-lasting relationships with big corporations that often lead to mega-deals,” said another source close to Guggenheim.

(Additional reporting by Olivia Oran in New York; Editing by Greg Roumeliotis, Carmel Crimmins and Pravin Char)