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Monday, August 21, 2006

Merger Madness: Bristol-Myers Won't Be Sold

The Wall Street Journal ran one of those bizarre filler pieces their weekend speculating that because Bristol-Myers is at a 10 year low it might be a takeover target

Almost any stock at a ten year low is a takeover candidate unless it has some huge debt or liability issue, and while Bristol-Myers has $8 billion in debt, it also has $5 billion in cash and a $42 billion market cap.

While the company may sack its CEO because of his general incompetence and a federal probe into a deal meant to keep a generic version of BMY’s Plavix off the market, the companies real problem is that is has been poorly run.

Even Jim Cramer has suggested that the Bristol-Myer’s CEO should be fired. Cramer goes further by saying that the stock would move up immediately with a changing of the guard. But, it would not stay up.

Bristol-Myers revenue has been moving down slightly over the last three calendars years. So has operating income. Revenue in 2003 was $20.9 billion and operating income was $4.7 billion. In 2005, revenue moved down to $19.2 billion, and operating income to under $4.2 billion. Revenue in the March and June 06 quarters were both below revenue in the December 2005 quarter. The same holds true for operating income.

Novartis, which trades near its 52-week high at over $57 has shown substantial revenue growth in each of the last three calendar years. So has Johnson & Johnson, which, at $64.50 is near an annual high.

While most of the big drug makers trade at between three times and four times sales, BMY trades at a little over two times. Perhaps the board at Bristol-Myers would do shareholders the favor of waking up and getting a management that can bring decent returns. BMY is not going to get a 60% premium on a buyout. To get the stock back to that level, the company is going to have to earn it.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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