Talk of Schering-Plough Bid May Be Test
Friday September 15, 5:12 pm ET
By Wallace Witkowski, AP Business Writer
Analyst: Report of Schering-Plough Plans to Merge With Bristol-Myers May Be More Than Rumor
NEW YORK (AP) -- Speculation that drugmaker Schering-Plough Corp. plans to offer to merge with Bristol-Myers Squibb Co. may be a gambit for the company to gauge shareholder support for such a move, an analyst said Friday.
On Friday, a story in the Newark Star-Ledger quoted unnamed sources close to Schering-Plough as saying the Kenilworth, N.J.-based company has serious plans in the works to propose a "reverse merger," where Bristol-Myers would buy out the company in a stock transaction. Schering-Plough's chief executive, Fred Hassan, would lead the resulting company.
Deutsche Bank analyst Barbara Ryan said in a research note that there is strategic merit to such a merger, and that Schering-Plough needs to diversify away from its lucrative cholesterol drugs Vytorin and Zetia, produced in a joint venture with Merck & Co. Because a Bristol-Myers merger can be framed as a "merger of equals," Schering-Plough can preserve its joint venture with Merck, which would be able to buy out Schering-Plough's stake if it was acquired by a larger drugmaker.
New York-based Bristol-Myers has a market cap of $49.3 billion and booked 2005 revenue of $19.2 billion, while Schering-Plough has a market cap of $31.46 billion and booked 2005 revenue of $9.51 billion.
"In our assessment, (Schering-Plough) could be launching a trial balloon, to test the response of their shareholders to such a merger, Ryan said in a note. It could also be an effort to put pressure on Bristol-Myers for such a merger, she said, "or this could be just speculation."
Talk of combining Bristol-Myers with another drugmaker started boiling on Tuesday after the company replaced its embattled chief executive, Peter R. Dolan, with interim CEO James M. Cornelius, whose last claim to fame was shepherding the sale of medical device company Guidant Corp. to Boston Scientific Corp. Also, in a conference call Tuesday, Bristol-Myers Chairman James D. Robinson hinted at the possibility of a sale in the future.
"We will deal with any bona fide proposals," Robinson said.
Howard Horowitz, director of research for Water Island Capital, which manages a fund that invests in possible takeover targets, believes Schering-Plough's intentions are more than speculation and that a convincing argument can be made to show they are equals regardless of market caps.
"I think there might be something to it," Horowitz said in an interview. "They're putting out a sale sign in the window, but it's not the best sign to be so forward."
Asked to comment on the Star-Ledger report, Bristol-Myers spokesman Jeff McDonald said, "We feel well positioned for growth and will do what's in the best interest of shareholders."
Schering-Plough spokesman Stephen Galpin said the company does not comment on rumors or speculation.
Banc of America analyst Chris Schott said in a note such a merger would create a solid pipeline, and immediately fill the vacant CEO post at Bristol-Myers. However, Schott said the two companies had no clear sales force overlap, and that both the Merck joint venture and Schering-Plough's licensing agreement with Johnson & Johnson Inc. for the Crohn's disease treatment Remicade are subject to change of control provisions.
French drugmaker Sanofi-Aventis SA, Bristol-Myers' marketing partner for the world's second best-selling drug Plavix, has widely been regarded as the favorite suitor. In 2004, Sanofi-Synthelabo and Aventis merged to create the world's third-largest pharmaceutical firm.
On the New York Stock Exchange, Bristol-Myers shares rose 24 cents, or 1 percent, to close at $24.92, and shares of Schering-Plough climbed 22 cents, or 1 percent, to finish at $21.33.
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