Bristol Myers Is the Icing on Mead Johnson Nutrition's IPO

Next week Mead Johnson Nutrition (MJN) is on the IPO calendar. When I first heard of this a month ago I was excited, but after I read the prospectus I decided to buy the parent company Bristol Myers (BMY) instead.

This IPO looks a lot like something coming from a buyout group. Bristol Myers is selling 20% of the company in a range of $21-24. Dividend will be $.80 per year. We don't have the final numbers for 2008, but Mead Johnson Nutrition looks to earn about $2.00 per share pro forma.

Just to be safe, Bristol Myers is keeping super voting class B shares, so the public will own 20% of the stock but will only have 5% of the voting power.

To put a little frosting on the cake, Mead Johnson will pay $1,750,000,000 to Bristol Myers in the form of a note. After that, MJN will have a negative tangible book value of ($5.43) per share. That's after the $21-24 the shareholders pay on the offering.

What are the shareholders getting? Minority interest in a baby food company and a 3.55% yield at the midpoint of the filing range. What does BMY get? $1.75 billion and they still control 95% of the company.

What about baby food? Has it occurred to anyone that maybe people won't be having as many babies with the bad economy? That makes sense to me.

Want to own a Johnson? How about Johnson and Johnson (JNJ). Long, successful history, clean balance sheet, positive book value, diversified product line, time tested management, and a 3%+ yield. Or Bristol Myers with a 5.4% yield and takeover talk.

Disclosure: Author is long BMY and JNJ

Comments

[Gerry Sullivan:]

I am the author of the article above. I am participating in the Mead Johnson Nutrition IPO (MJN) not because I think it is a great deal but because it seems to have demand from institutional investors and might pop.
.
Jim Cramer said that Wall Street wants this deal to work.
So, I am also long MJN now on the offering priced at $24.

I didn't have any difficulty getting shares from 3 different firms. Maybe it
isn't that tight a deal.

I still consider that BMY and JNJ are better investments.

Feb 11 07:56 AM

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