Despite the economic climate, there were companies actually willing
to risk the frigid waters of the initial public offering market
Wednesday. Leading the motley crew, which includes Changing World
Technologies Inc., a producer of organic fertilizer and biofuels, and
O'Gara Group, a provider of homeland defense products and services, is
Bristol-Myers Squibb Co. unit Mead Johnson Nutrition Co.
If any of these companies are going to successfully float, Mead
Johnson is the one because, unlike the others, Mead is an established
company with well-known brands -- baby formula Enfamil and children's
vitamins Tri-Vi-Sol -- and strong revenue, $2.88 billion in 2008 sales.
Mead Johnson plans to issue 25 million shares at $21 to $24 per share,
according to SEC filings. The flotation amounts to a 10% stake in the
company. The shares will trade on the New York Stock Exchange under the
symbol MJN.
Bristol-Myers has a big incentive to get Mead out. It needs the
capital to keep up with the Joneses, suggests a post on finance blog
SeekingAlpha. Pfizer Inc.'s announced $68 billion acquisition of Wyeth is
expected to prompt a series of "me-too" deals in the pharmaceutical
industry, as Dealscape noted earlier. Consequently, Bristol-Myers might like to use the estimated $564 million in proceeds from the spinoff to fund dealmaking.
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In fact, Seeking Alpha notes that Bristol is no stranger to using spinouts for dealmaking:
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.
However, $564 million seems like a puny number compared to Pfizer's
big deal, or even Roche Holdings AG's $44 billion bid for Genentech Inc. Sure, BMS had
originally planned to raise $1 billion, and still might if it goes, as
expected, back to the market to cash in more Mead shares, but it still
seems like chump change compared to rivals.
There is another possibility afoot here. Bristol-Myers executives may be grooming the company for a sale. In fact, there are rumors
on the Street that Sanofi-Aventis SA has its eye on Bristol-Myers.
Spinning off Mead might make Bristol-Myers an easier pill to swallow. -
Matthew Wurtzel
