ImClone to Reveal Mystery Suitor?

Includes: IMCL, LLY, PFE
by: Eben Tessari

According the WSJ, ImClone (IMCL) may reveal the buyer reportedly offering $70/share (~$6.1B) and there is some speculation that the suitor is either Pfizer (NYSE:PFE) or Eli Lilly (NYSE:LLY) (though they don’t seem to have quite enough cash in the bank).

Investing, ultimately, is about alternatives.  Why invest in the stock market if you can get 10% in a savings account?  Should a company build a new plant in Singapore or retrofit an already established plant in Germany?  The answers to these questions are not always easy but invariably, alternatives are considered.

I ask you, mystery suitor: Is this really the best use of your $6.1B in cash?

While buying ImClone, splitting the revenue of Erbitux with Bristol-Myers Squibb (NYSE:BMY)  and dropping tens of millions on legal fee’s for control of IMC-11F8 sounds sarcastically attractive, are you sure this is the best use of your capital.  Buying ImClone may be a good investment, just not the best alternative investment.  There is a subtle but important difference.

How about taking a stake in 20 innovative start-ups or licensing 100 promising compounds or buying 2 other mid-size companies you already share revenue with?  The possibilities are many.  Explore them.

I’m sure that the mystery managment team already knows this.  I’m sure all of the 100, ivy league MBAs in upper management has calculated the NPV of each potential project and managed the risk/reward profile of each scenario but riddle me this: four months ago, was ImClone on your radar screen?  Did the acquisition make sense before the angry letters and accusations starting flying?

If not, move on.