Bristol Myers Squibb Analysis
mega merger of Pfizer and Pharmacia the landscape of the Pharmaceutical industry is once again changing.
Bristol Myers last venture into the M&A world yielded them Dupont Pharmaceuticals in a $7.8Bln deal in 2001. In line with the companies desire to solidify its product pipeline it was attracted to Dupont’s strength in virology and cardiovascular businesses. Unfortunately not much has gone right for BMS since this acquisition. It was nearly a year ago that Bristol-Myers Squibb was forced to reveal that wholesale inventories of its medicines were too high in the U.S. and that reducing them would hurt 2002 earnings. BMS’s shares dropped 15% on the announcement, but that came on the heels of a 15% drop 10 days earlier when management announced poor results for a new drug that was expected to be a blockbuster, and that after the ImClone Systems debacle.
So in coming off of a particularly difficult year where its stock price has fallen from $54.20 to $24.70 and its market cap has fallen to an all time low of $46Bln BMS should strongly consider a major move to try and right the ship. These solutions include, selling outright, merging with an equal partner or acquiring a promising smaller company. Given its sagging stock price and weak balance sheet the most viable option for BMS and its shareholders may be to sell route. The competitive pressures in the industry have been heightened as a result of the Pfizer-Pharmacia merger and if firms wish to remain competitive with this giant of the industry another round of Pharmaceutical consolidation is probably on the horizon. BMS is far more likely to be an aquiree rather than an aquiror.
It is important to stress the reasons behind a sell strategy:
- In light of the Pfizer Pharmacia deal competitive pressures in the industry will force all players to take a fresh look at themselves and realize that it will even more difficult to compete on equal footing with this new giant.
- A poor financial showing in 2002 has reduced BMS market capitalization to an all time low of $46Bln, with a number of scandals fresh in everyone’s mind, inventory and pipeline issues still unresolved being acquired may be the only way for the shareholders to realize a truer value of the firm.
- From an economic perspective an M&A deal will allow BMS to realize economies of scale and synergies. Pooling R&D potential, streamlining sales forces and marketing campaigns and slashing top management will all lead to cost savings. In the case of the Pfizer-Pharmacia deal cost savings are estimated at $1.4 billion in 2003, $2.2 billion in 2004 and $2.5 billion by 2005.
- BMS’s current financial reality makes other M&A strategies very difficult to execute. The predatory nature of this industry would most likely see competitors outbid BMS in any takeover attempt they initiate.
For all of [next page]