Jeffrey, you're reaction to the WSJ BMY article is reasonable, but for BMY followers, that sale has been long awaited. BMY's beauty-care operations which include the hair-care line accounted for just 12% of BMY's sales and 5% of pretax earnings (in '99, from the '00 Barron's report I am re-reading now). In skimming the '00 BMY Annual report, I can't even find a reference to Clairol. Only prescription drugs are discussed it seems. Clairol has stayed a part of BMY for years because the father of a previous BMY Chairman/CEO (Richard Gelb) founded the Clairol business.
I'll guess next up for sale (for maybe $5Billion) would be the medical device business - another peripheral operation that according to analysts, has growth rates and operating margins lower than pharmaceuticals.
BMY is slimming down and concentrating on its core business. The money they receive from PG will likely be used for coventures or acquisitions (gotta keep pushing product into that large BMY pharmaceutical salesforce). That cash infusion lets BMY expand its possibilities and assuage investors' fears that upcoming drugs sales/profits won't be enough to overcome those drugs coming off patent. (That's "assuage" imo - those fears might still come true)
Maybe there'll be some stock buyback. (Debt's already at a low level, so I'll guess they won't pay it down more.) The result should eventually make it easier to compare BMY to other pharmaceutical companies and maybe improve BMY's relative p/e.
I'd say the deal's good for PG too. They get an opportunity to bring fresh perspective to Clairol - and they're already in the beauty business, get to use their marketing and promotional expertise, and get to add sales to their top line. PG sales have been relatively flat - relative, imo, to the earnings increases they've reported in recent years. Increasing sales, even if they have to buy those sales, is important - imo - if PG wants to be considered anywheres near a 'growth' stock.
Paul. |
