Bristol-Myers Squibb Sees Perfect Timing to Divest Huge Mead Johnson Nutrition Stake

Bristol-Myers Squibb (BMY) will sell its last non-biopharmaceutical holding, a majority stake in Mead Johnson Nutrition (MJN), the company said. The pediatric nutrition company produces Enfamil baby formula and is a leading supplier of children’s nutritional products globally. Bristol-Myers’ move, part of a wider healthcare divestment strategy, will help the company improve its overall financial position and open the door to the pursuit of strategic business development opportunities, says CEO James Cornelius.

The pharmaceutical giant holds 83 percent of Mead Johnson, which completed an initial public offering in February. Since then, shares of Mead Johnson have risen to about $43 a share from $24 per share, an increase of nearly 80 percent. When the spin-off is complete, Bristol-Myers expects the transaction to be net cash flow positive to its biopharmaceutical business and accretive to earnings beginning in 2010.

“Now is the right time to move forward with a spin off given the excellent performance of Mead Johnson since the IPO earlier this year and our confidence in the current and future performance of our biopharmaceuticals business,” says Cornelius. “With a successful execution of this spin-off, we fully consider ourselves a biopharma company.”

Bristol-Meyers management had not initially expected to spin off its share in Mead Johnson so soon. However, Cornelius told investors November 16 that the company’s “near-term pipeline and clinical studies, for the most part are extremely encouraging,” and with the skyrocketing value of Mead Johnson’s stock, “the stars are literally lined up” to try the transaction before Christmas.

Bristol-Myers Squibb shareholders will be able to exchange some, none or all of their shares of Bristol-Myers Squibb common stock for shares of Mead Johnson common stock at a rate that will be finalized by December 11. By the end of 2009, Bristol-Myers expects to have a projected cash balance of $10 billion.

Comments

[Bangalore19]

It's actually a split-off. But i'm "splitting" hairs here . . . still makes BMY attractive for the long-term to me.

2009 Nov 28 02:01 PM

[Diegojames]

I own Bristol-Myers-Squibb but do not understand this transaction. If it is done how can I switch shares. Should I buy more before December 10th??????
Bristol Myers is a BUY because mergers are coming ...brand names going off patent and the failures of some drugs will drop sales . Therefore it is imperative to reduce operational costs . I also own Merck and may buy Novartis.
As a pharmaceutical chemist these companies have a future that I see on a daily basis.

2009 Nov 29 02:07 AM

[johnnysize]

You will have the option to swap your BMY shares for MJN shares at at 10% discount. You will not receive dollar for dollar unless you are an odd-lot BMY shareholder...this is called proration risk. As far as trading implications, they are dynamic. I would explain 2 things: MJN will be weighted UP in indexes and BMY by retiring shares will be weighted DOWN. Do your homework and watch the tape..Basically the options tape. Thats where the game begins and will untimely end in a VERY volatile, untradeable, blizzard of destruction foe the average day trader. JohnnySize will have the answer. Enjoy the blindsiding


On Nov 29 02:07 AM Diegojames wrote:

> I own Bristol-Myers-Squibb but do not understand this transaction.
> If it is done how can I switch shares. Should I buy more before December
> 10th??????
> Bristol Myers is a BUY because mergers are coming ...brand names
> going off patent and the failures of some drugs will drop sales .
> Therefore it is imperative to reduce operational costs . I also own
> Merck and may buy Novartis.
> As a pharmaceutical chemist these companies have a future that I
> see on a daily basis.

2009 Nov 29 09:15 PM

[johnnysize]

Enjoy

2009 Nov 29 09:23 PM

[Jboyd]

So is it a good idea to swap shares of BMY for MJN ($1 to $1.11)? Which position has the greater potential???

2009 Dec 02 10:12 AM

[najdorf]

It's almost impossible to say whether you should do the swap until we have the ratio. Your broker should have sent you a large packet about how the swap works and how to make your election. If not take a look at the SEC or the BMY/MJN sites. You should be careful and talk to an expert to make sure you understand how the prices play out on the last day because there's also a point at which they reduce the discount. Essentially this is very hard to play because those with big money will push the prices to levels that work for their needs and prices may snap back unpredictably after the transaction is complete. So what's most important is to see how many BMY shares you have, how many MJN shares you could get, and which earnings stream you prefer. The trading is too hard on something this big when arbs are desparate for fun games to play as we approach year-end.

2009 Dec 02 09:41 PM

[Natcon]

This appears to be a hot potato, with a very hard to predict result. (See najdorf's comment) It is enticing to make a quick 10%, but keep in mind, that there is an upper limit to the exchange offer. As of yesterday, the spread between BMY and MJN including the 10% discount would have resulted in 0.64 shares of MJN, were it not for the upper limit of 0.6027. This upper limit effectively reduces the discount to 9.38%.
Just ask yourself: Why did I buy BMY in the first place, and would I want to own MJN?


On Dec 02 10:12 AM Jboyd wrote:

> So is it a good idea to swap shares of BMY for MJN ($1 to $1.11)?
> Which position has the greater potential???

2009 Dec 03 07:45 AM

[Adonis]

Are there any stipulations on a wash sale? How would it work if you swap your shares, then quickly sell all of MJN, and buy back BMY? IS there a 30 day limit that you must hold the shares for?

2009 Dec 04 01:14 PM

[tonymueller]

I am at a loss, i own 1000 shares of bmy and was told I should tender it and prior to that sell mjn shares. the stocks were 25 and 42.5 respectively, do u make money doing that? and how many shares should i have sold, looks good now that stocks are 25.15 and 41.9..... is it still worthwhile and how do u do the math to find out where it isn't a good idea?

2009 Dec 08 11:38 AM

[Adonis]

On 1000 shares with the prices as of 11:41 Dec 8, you would only gain $100 if you switched. This is because of the upper limit of .6027 shares of MJN for 1 share of BMY. I have a few clients that have asked me whether they should do this or not. It depends first on whether you want to own MJN in the end, and at what discount would you get it at. Right now there really isn't a discount, so it is the same as just selling BMY and buying MJN on the open market. My advice is to hold on to BMY since it has a better yield and more stability. However, if you do not mind the risk, MJN could continue its growth story once it is out from under BMY.


On Dec 08 11:38 AM tonymueller wrote:

> I am at a loss, i own 1000 shares of bmy and was told I should tender
> it and prior to that sell mjn shares. the stocks were 25 and 42.5
> respectively, do u make money doing that? and how many shares should
> i have sold, looks good now that stocks are 25.15 and 41.9..... is
> it still worthwhile and how do u do the math to find out where it
> isn't a good idea?

2009 Dec 08 11:45 AM

[Adonis]

Another concept to think about it the tax implications. If you have a capitol gain in your BMY shares, you can make the switch to MJN and not have to pay the tax on that gain (I believe). Likewise, if you have a loss, you may not want to make the switch, you may want to take the loss, then just buy MJN.

2009 Dec 08 11:56 AM

[tonymueller]

Thanks, I was under the impression that I would retain my 1000 shares of BMY as well as gaining the new MJN stock. That is why I was told to sell the MJN prior just locking in a profit there and still keep my BMY stock. The ratio is .6313 from the latest news I have seen.

How do you actually figure this all out?

2009 Dec 08 12:09 PM

[Adonis]

The issue is there is an upper cap of .6027. So, right now the difference between the two share prices is larger than that, but it doesn't matter, because BMY has stated they will offer the exchange at the current ratio, or .6027 whichever is smaller. BMY wanted to give shareholders at most a discount of 10%, but it could be lower, and judging by the stock price today, it will be lower.

Yes, you will exchange some or all of your BMY shares for your MJN shares. Unless BMY's price goes down, or MJN's price goes up by Friday, there really isn't much worth in doing the switch.

I am a research analyst for an investment advisory firm, and I love math, so I created a spreadsheet so all I do is p0lug in the current price and the shares, and it tells me whether it is worth it or not.

2009 Dec 08 12:24 PM

[Adonis]

My fault, correction, I was not aware of the extension, so the upper limit is now .6313 like you said, so it makes it a little more valuable. Sorry about that.

2009 Dec 08 12:54 PM

[tonymueller]

Again appreciate the help, think i will hold my bmy so I don't screw things up, I was on another site that said bmy has almost 2 billion shares and is taking under 300 million for the mjn 170 million so I wouldn't even know how to guess how much of my 1000 shares would be changed to mjn stock.
Something about the proration, amount tendered blah blah over my head i guess.

2009 Dec 08 02:10 PM

[johnnysize]

Is MJN going into the SPX 500?

2009 Dec 10 11:59 AM

[johnnysize]

Ahhhh...I get it. When the ratio is set and the S4 is effective we will see if a 10 Billion dollar Company will be in the SPX 500. Got it now.

2009 Dec 10 12:14 PM

[johnnysize]

oh gee...thats option expiration ...wow. maybe now proration assumptions will go down , MJN borrow will get tougher, and BMY conversions will be worth something. Maybe even the CAP gets blown through on the DOWNSIDE...wouldnt that be interesting. I could trade this in my sleep.

2009 Dec 13 07:00 PM

[johnnysize]

Thanks Monkeys... I now own a cheap takeout stock with huge growth potential as you stain yer drawers wondering which biotech BMY will hook up with on a stock deal first. I like BMY...its kinda like the red headed stepchild...you have to like it. MJN on the other hand is nothing but mothers milk...and ya know what? I love it! Much better than the straight from the tap protein most of the hedge fund community is drinking on a daily basis.

2009 Dec 19 08:31 PM