The Wall Street Journal's Heard on the Street column suggests shareholders of Bristol-Myers Squibb consider cashing out now in advance of a possible takeover, as a transaction premium has already been priced into the stock. Shares recently popped 10% on speculation that French pharma Sanofi-Aventis was going to bid for the company, which has a market value of about $56 billion and is trading at about $29, 36x its 2007 EPS. The company's pipeline and current products amount to a share value of about $25, but several factors have upped the odds of a takeout and bumped up the shares: A patent case on Bristol-Myers's anticlotting drug, Plavix, appears likely to end in the company's favor; and federal oversight of the company resulting from an accounting scandal is shortly to end. Still, there is downside risk that the company will appoint a less transaction-hungry CEO than James Cornelius, its interim CEO, or that the Plavix case will go against Bristol-Myers. Sanofi is considered a likely acquirer because it is already partnered with Bristol-Myers on Plavix and blood-pressure drug Avapro. Shareholders might benefit from a bidding war or simply from the success of Bristol-Myers's pipeline, but analysts believe there is little upside potential remaining in the shares.
Sources: Wall Street Journal
Commentary: Will Sanofi-Aventis Merge With Bristol-Myers Squibb? • Bristol-Myers, Sanofi Ink Pre-Merger Deal, Newsletter Claims • Bristol-Myers New CEO Appointment Only Increases Takeover Rumors
Stocks/ETFs to watch: Bristol Myers Squibb Co. (BMY), Sanofi-Aventis [ADR] (SNY). Competitors: Merck & Co. Inc. (MRK), Novartis AG (NVS), Pfizer Inc. (PFE), GlaxoSmithKline plc [ADR] (GSK). ETFs: Pharmaceutical HOLDRs (PPH), iShares Dow Jones US Pharmaceuticals (IHE), SPDR S&P Pharmaceuticals (XPH), First Trust Morningstar Dividend Leaders Index Fund (FDL)
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