By Jessica Hall and Lewis Krauskopf

But Pfizer shares slumped 10 percent and the cost of insuring its debt rose to an all-time high on concern about the additional debt and likely credit-rating downgrades.

Pfizer has long touted a hefty dividend to keep investors happy while it develops new drugs. But to do the deal, Pfizer slashed its dividend to 16 cents per share, effective with its second-quarter payout.

The dividend had led the industry, although the company maintains it still remains competitive with other drugmakers.

"People who owned it for the dividend got slapped in the head with a two-by-four today," said Mike Krensavage, principal with Krensavage Asset Management.

The blockbuster purchase planned by the world's largest drugmaker would reshape the pharmaceutical industry, while thawing a merger climate frozen by the global credit crisis.

Pfizer, which also forecast disappointing 2009 profit, said it would cut 15 percent of the combined company's workforce of about 130,000 employees and close some manufacturing sites -- adding to the job cuts sweeping through corporate America.

The New York-based company agreed to pay $50.19 -- $33 in cash and 0.985 share of its stock -- for each Wyeth share. That represents a 29 percent premium over Wyeth's closing share price last Thursday, before news of the talks began to leak.

Wyeth shares dipped 0.8 percent to close at $43.39 on Monday -- well below the offer price. The shares of Pfizer, which secured $22.5 billion in funding from a consortium of banks to help pay for the deal, fell 10.3 percent to $15.65.

"Given that there is a sizable amount of debt financing that has to occur, you would expect more risk to be built in," said David Moskowitz, an analyst with Caris & Co.

Indeed, the megadeal comes amid a merger drought, as tight credit markets make borrowing costly and difficult. Analysts said the fact that Pfizer had secured a large amount of financing was a positive signal. ID:nN26539838

"Deals of this quality and this magnitude will rekindle enthusiasm and hope about equity markets," said Andre Bakhos, president of Princeton Financial Group. "In the midst of a global recession, here is Pfizer, hopefully spending their dollars wisely."

COPING WITH LIPITOR LOSS

The acquisition -- the third-largest in the drug industry since 1998 -- would help Pfizer cope with a major gap in revenue in 2011, when its blockbuster Lipitor cholesterol treatment will begin to face U.S. generic competition. The company now says its earnings for 2012 should perhaps be about 20 percent above what Wall Street expected.

"Investors have been rightfully concerned about when Lipitor goes off patent," said Pfizer CEO Jeff Kindler. "Today's announcement definitively addresses that." ID:nN26388736

The deal would help Pfizer diversify into vaccines and injectable biologic medicines by adding Wyeth's big-selling Prevnar vaccine for childhood infections and Enbrel rheumatoid arthritis treatment. Both areas are seen as more immune than traditional pills to generic competition.

Pfizer also adds Wyeth's consumer health business that includes Advil painkillers more than two years after selling its own consumer health unit to Johnson & Johnson. ID:nBNG226161

Pfizer typifies many large drugmakers, which have struggled to produce new blockbusters to replace those on which they lose exclusivity. ID:nN23318400 Wyeth itself loses patent protection next year on its own top drug, the antidepressant Effexor XR.

The deal is expected to boost Pfizer's earnings in the second full year after closing and result in cost savings of $4 billion by the third year. Pfizer is reducing its manufacturing sites to 41 from 46 facilities.

"An acquisition of this nature can be valuable if management recognizes how rich their spending is and really cuts to maximize the profitability of the new organization," said Michael Castor, portfolio manager with Sio Capital Management. "$4 billion in cuts is a good first step."

CONSOLIDATION WAVE?

The deal could trigger a wave of consolidation in the cash- rich pharmaceutical sector as drugmakers look to diversify revenue sources in the face of competition from generic-drug rivals, analysts said.

In sealing the Pfizer deal, Wyeth withdrew from talks to buy Dutch vaccine firm Crucell. Crucell shares fell 12.6 percent. ID:nLQ120204

Based on Wyeth's 1.33 billion shares outstanding as of October 31, the deal with Pfizer would be worth $66.8 billion; including Wyeth's stock options, it would be worth $68 billion.

The deal is subject to Pfizer's financing sources not backing out should the company's financial health suffer a material adverse change or should it fail to maintain a certain credit rating. Standard & Poor's said on Monday it might cut Pfizer's top "AAA" rating. ID:nN26379279

Wyeth would have to pay Pfizer a $1.8 billion break-up fee if it walks away from the deal, while Pfizer would have to pay Wyeth $4.5 billion if it does so, according to a source familiar with the deal.

Pfizer and Wyeth expect the deal to close at the end of the 2009 third quarter or during the fourth quarter. Analysts said there did not appear to be much risk of antitrust issues holding up the deal.

Pfizer was advised by Bank of America Merrill Lynch, Goldman Sachs, JPMorgan, Barclays and Citigroup Inc. Wyeth's financial advisers were Morgan Stanley and Evercore Partners Inc.

Pfizer also reported that fourth-quarter results suffered because of a higher tax rate, charges from cost-cutting and settlement costs from a probe by U.S. authorities. The company earned $266 million, or 4 cents per share, on revenue of $12.35 billion.

Pfizer forecast adjusted earnings would fall at least 19 percent in 2009 as it takes a big tax hit for repatriating funds for the deal, whereas Wall Street was expecting slight growth.

Also on Monday, Wyeth posted fourth-quarter results that fell short of expectations. The company earned 71 cents a share on revenue of $5.35 billion, compared with the average Wall Street forecast of 79 cents a share on revenue of $5.79 billion, according to Reuters Estimates.

(Additional reporting by Edward Tobin, Ransdell Pierson, Bill Berkrot and Diane Bartz in Washington; Editing by Gerald E. McCormick and Andre Grenon)