As another average Monday comes to an end on Wall Street, a not so predictable rest of the week still awaits. It looks as if IPOs are back with a bang this week after almost 10 months of being on somewhat of a hiatus due to the deepening recession our country, as well as the rest of the world, is seemingly falling deeper into. After Visa (V) went public last March in its record breaking IPO, as well as a few other IPO duds between then and now, it looks as if investors might be again getting back their taste for initial public offerings.
Investors who are interested have plenty of options to choose from today and Wednesday. NIVS Intellimedia, a chinese producer of consumer electronics, Changing World Technologies, a producer of organic fertilizer and bio-fuels, O'Gara Group, a provider of homeland defense products and services, and Mead Johnson Nutrition (MJN), the global leader in manufacturing pediatric nutrition products all of who will begin trading Tuesday. If that’s not enough to wake up your risk appetite, you still have Madison Square Capital, a newly formed REIT planning to invest in agency securities., which will begin trading on Wednesday. Now I must admit, that is quite an interesting group of companies going public and should stir up quite a bit of attention Tuesday and Wednesday, but the one I am interested in starting a position in is Mead Johnson Nutrition.
For those of you who are unaware of the corporate structure, Mead Johnson Nutrition is currently a part of Bristol Myers Squibb (BMY) and is going to be spun-off in what appears to be a divide and conquer strategy to possibly acquire another pharmaceutical company or at least be prepared to do so should the opportunity arise. Many pharmaceutical companies have patents on drugs with expiration dates coming up in the next few years. When their patent expires the revenue created from these drugs will no longer be guaranteed, and probably non-existent, therefore cutting huge chunks from some company’s bottom line.
It should come as no surprise then, that Bristol Myers Squibb's own blood thinner drug Plavix, which accounted for $1.47 billion dollars in sales in the fourth quarter alone, will lose its patent for the drug in 2011. Bristol Myers Squibb is no stranger to asset trimming by spinning off companies that aren't involved in the company’s core pharmaceutical business. In 2001 it spun off its orthopedic device maker under the name Zimmer Holdings (ZMH). If you'll look at the chart for Zimmer Holdings (ZMH) from 2001 until just recently you will see that the spin off seemed to be successful as the share price has seemed to steadily increase for the past 8 years until the recent market correction.
Bristol Myers Squibb's (BMY) original estimate for revenue from the spin-off was $1 billion, and due to current market conditions is now down to $564 million. The big difference in the numbers should be no huge deal for Bristol Myers Squibb (BMY) as it seems that they will eventually hit their original estimate of $1 billion through secondary offerings and such by the time the spin-off is completed.
I don't expect Mead Johnson Nutrition to make any major jumps in either direction on its first trading day so I plan to watch it move a bit before I decide to by any shares or options contracts. Mead Johnson Nutrition will be the only publicly traded company in its sector. Children's nutrition is a profitable market with high growth prospects. Citibank, Morgan Stanley, and Bank of America will be underwriting the offering Tuesday of 28.8 million shares at a price of $21 - $24 a share. Mead Johnson Nutrition will begin trading on the New York Stock Exchange today under the ticker (MJN).