Bristol-Myers tasty bite for pharma companies
The market cap of the company is currently $62 billion. But this includes a speculative premium that it will be acquired
Breakingviews.com | Robert Cyran
Bristol-Myers Squibb Co. is a tasty morsel among pharma companies. It has a large number of drugs in development, many in profitable areas such as oncology. None of its major drugs are expected to go off patent before 2011. Its boss, James Cornelius, is nearing retirement. He also sold the last company he ran. And in the past two weeks the two biggest roadblocks to a sale—the government’s oversight of Bristol’s operations and a patent challenge to its best-selling blood thinner Plavix—have been pushed side.
Indeed, the US group’s market capitalization has risen by a third in the past year on speculation that Sanofi-Aventis, GlaxoSmithKline, Pfizer or Novartis will snap it up. Despite the rise, Bristol isn’t out of reach—the numbers still stack up for all the potential acquirers if one assumes typical savings associated with pharma mergers.
Bristol’s market cap is currently $62 billion (Rs2.54 trillion). But this includes a speculative premium that the company will be acquired.
Bristol was trading around $47 billion last year, before merger talk heated up. But that figure needs to be adjusted. Just two weeks ago, the company won a patent case that eliminates a threat to its profitable Plavix line. This is worth at least $5 billion. So, its current fair value might be$52 billion. Assume shareholders will demand at least a 30% premium, which is about average for the sector, and the starting price for serious negotiations appears to be at least $67 billion.
That doesn’t appear prohibitive. The average pharma merger over the past decade has resulted in cuts of more than 10% in general costs and R&D of the combined company. Some, such as Sanofi’s purchase of Aventis, have generated more.
Bristol has already been cutting. So assume its savings are limited to 10%.
Among the four big potential acquirers, the after-tax value of the synergies would range from $18 billion for Sanofi to $23 billion for Pfizer. In other words, the potential synergies cover both Bristol’s fair value and a 30% takeover premium.
Whether the savings would cover a premium resulting from a heated auction is another matter.
And there’s a good chance one could erupt. Attractive pharma assets such as Bristol come on the market rarely. There’s a good chance other big drug companies would compete to snap it up.
livemint.com
Rumors fly but hurdles remain to Sanofi, Bristol deal
By Ben Hirschler and Ransdell PiersonTue Jun 19, 4:24 PM ET
A court ruling upholding the patent on blockbuster blood-thinning drug Plavix has reignited talk France's Sanofi-Aventis (SASY.PA) will bid for its smaller U.S. partner Bristol-Myers Squibb Co. (NYSE:BMY - news).
The Plavix ruling by a U.S. judge on Tuesday handed a major victory to Bristol-Myers and Sanofi, which are partners on the multibillion-dollar blood clot-preventing drug. The long-awaited ruling blocks sales of generic Plavix.
The trans-Atlantic takeover would boost Paris-based Sanofi's weakened new drug pipeline and allow significant cost savings. But serious obstacles remain to any deal, analysts said, such as differences between top executives at the firms.
Recent partnership deals by Bristol-Myers for some of its promising experimental drugs also may indicate the New York-based company now is seeking to go it alone.
The idea of a combination to forge the world's biggest drugmaker is not new and is widely believed by analysts to have the support of Sanofi's powerful chairman, Jean-Francois Dehecq.
Chief Executive Gerard Le Fur, however, is said to be cool to the idea -- though Le Fur's go-it-alone stance may have been undermined since the rejection of Sanofi's key obesity drug Acomplia, also known as Zimulti, by a U.S. advisory panel.
"I think Dehecq wants Bristol on board and Le Fur doesn't," said Paul Diggle, an analyst at Nomura Code Securities in London. "But Le Fur's argument for not bidding is that he has a world-class pipeline -- well, for the third-biggest drug company in the world, it is not world class any more."
Sanofi declined to comment on the takeover speculation.
Bristol management, meanwhile, is under less pressure to sell out, as sales mount for newer drugs such as its Abilify drug for schizophrenia, Orencia for rheumatoid arthritis and Sprycel for cancer.
"The 10 percent risk that Sanofi and Bristol might have lost this (Plavix) case has now dried to dust, and now strengthens the opportunity for management at Bristol to reassess an independent future," said Viren Mehta, a principal at healthcare investment firm Mehta Partners in New York.
Mehta puts Bristol in the "top quartile" of U.S. drugmakers in terms of new products being launched, giving it a good chance of having a viable independent future.
The fact that the company has signed deals involving experimental drugs in recent months with AstraZeneca Plc (AZN.L) and Pfizer Inc. (NYSE:PFE - news) may also suggest Bristol CEO James Cornelius is not that keen to surrender independence.
Bristol in April said Pfizer agreed to help develop and sell its blood-clot preventing drug apixaban. In January, AstraZeneca agreed to partner on two Bristol diabetes drugs.
Aurel Leven analyst Jerome Berton said the fact that some of Bristol's interesting products had already been licensed out undercut its value as a pipeline-booster for Sanofi.
So could Sanofi make a Bristol takeover deal work?
It would be hugely expensive, with Bristol's market value currently around $60 billion and the stock trading at 22 times expected 2007 earnings per share. Sanofi, which has a market cap of more than $110 billion, trades at a lowly 2007 price/earnings ratio of 12.
Still, Mark Purcell of Deutsche Bank thinks Sanofi could make the deal positive to earnings, even at $33 a share, if it loads up with sufficient debt.
Whether that is the best use of resources is an another matter. Investors are disillusioned with 'Big Pharma' groups created by mega-mergers, and Sanofi has underperformed its European peers by some 15 percent in the past 12 months.
"At this stage, if Sanofi could stomach it, a higher number of smaller deals would probably be more beneficial to the company than one large deal," Purcell said.
Then there is the question of other bidders.
GlaxoSmithKline Plc (GSK.L) has looked at the business in the past, according to analysts, though the British-based firm is seen as unlikely to bid today. Pfizer could be a more feasible predator, some analysts believe.
"I think Pfizer might have a crack. They've made it pretty clear they are still in the market for another sizable acquisition," said Nomura's Diggle.
(Additional reporting by Noelle Mennella in Paris and Lewis Krauskopf in New York)
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