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BMS - a good catch or a damp Squibb?

Marker rumours tout US firm as a possible takeover target following CEO's departure

Speculation over Bristol-Myers Squibb's (BMS) future has developed into reasonably widespread acceptance that the company has become a firm take-over target, following the ousting of Peter Dolan as CEO and chief lawyer, Richard Willard, early last week.

News of Dolan's high profile departure reportedly pleased investors, whose stock value has slipped by more than half in the last five years, and has put BMS firmly on the map for several European rivals understood to be considering a hostile take-over.

Much of the speculation has centred on Schering-Plough (S-P), which was reported in New Jersey newspaper, the Star Ledger to be ìseriousî about considering its options with regard to a merger. CEO, Fred Hassan, who took the helm of struggling S-P in 2003 and has made clear his goals of filling the gaps in the firm's weak pipeline, is known to have built up a war chest in order to grab such opportunities.

A merger between S-P and BMS would yield a company with revenues of some $29bn, BMS' promising anti-cancer pipeline prospects propping up S-P for the foreseeable future. Some commentators have highlighted that the pharma industry, without deviation from historic trends, is due another big merger soon, the last being the 2003 combination that created sanofi-aventis.

There are some who do not consider S-P and BMS to be an ideal tie, however. ìWe do not see that S-P and BMS form a nice strategic fit, and there are too many uncertain factors on both sides [regarding possible threats to big cardiac drugs at both companies],î commented Gus Ando, senior pharma analyst at Global Insight.

He added, with regard to Hassan's position that ìit is too early in his tenure and turnaround strategy at S-Pî for such a manoeuvre to be completed smoothly.

Potential buyers
AstraZeneca has also been cited in the UK press as being a possible buyer. The company declined to comment on the speculation, though it pointed to comments made recently by CEO, David Brennan, which outlined the company's future as independent, relying on organic growth as well as strategic product acquisitions.

However, the firm, which itself was rumoured to be a potential take-over target earlier in 2006, has shown that it is willing and able to buy other corporate entities, as evidenced by its recent purchase completion of Cambridge Antibody Technology.

A third possible, and indeed likely, contender is sanofi-aventis. ìS-A definitely makes more sense. It is much bigger, has greater financial flexibility and won't need to create as much debt to purchase, or engage in a merger with BMS,î Ando noted.

Despite the fact that S-A is still in the midst of shaking down its own merger in 2003, the company is well placed to envelope BMS as the two firms already have working agreements in place, for blood-thinning drug, Plavix.

ìThere is already history there and people like to see synergy between two companies. Some have been hesitant to talk about S-A, as it's still in a pretty big merger, but that has never stopped the pharma industry before,î added Ando, pointing to Pfizer's moves on Warner-Lambert and then Pharmacia within a relatively short period of time. ìS-A's position is not an impediment to a fairly quick merger.î

S-A chief, Jean-Francois Dehecq, was described by The Times newspaper as the ìideal tonic for Bristol-Myers Squibbî.

Ando added: ìTherapeutically, I don't see many problems with S-A; they fit quite nicely with BMS.î

Dolan's rapid exit from BMS was the result of a shove from federal monitor Frederick Lacey, a watchdog figure put in place to ensure the company adhered to instructions imparted previously by lawyers.

30th September 2008

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