Fool.com: Drug Industry Awash in Talks, Turmoil (Breakfast News) December 17, 1999

BREAKFAST WITH THE FOOL

Friday, December 17, 1999

"To travel hopefully is a better thing than to arrive, and the true success is to labor."
-- Robert Louis Stevenson

Drug Industry Awash in Talks, Turmoil

By Richard McCaffery (TMF Gibson)

If you think Santa's busy this time of year, check out the hailstorm of change in the pharmaceutical industry.

A new merger is being discussed, an old merger agreement was scrapped, and a proposed merger is under siege.

Life sciences company Monsanto (NYSE: MTC) and drug manufacturer Pharmacia & Upjohn (NYSE: PNU) are discussing a possible merger that would bring together two giant companies of equal size, The Wall Street Journal reported.

Pharmacia makes the hair loss drug Rogaine, diarrhea medication Kaopectate, and motion sickness pill Dramamine. Monsanto -- which makes NutraSweet, Equal, and arthritis drug Celebrex -- is also considering splitting up the company to unlock the value of its Searle pharmaceutical unit, the Journal reported earlier this week. Investors have pressured the company to do so because they think Monsanto's agricultural business is weighing it down.

Meanwhile, pharmaceutical firm Pfizer (NYSE: PFE) stepped up efforts yesterday to scuttle the $57 billion merger agreement between drug makers Warner-Lambert (NYSE: WLA) and American Home Products (NYSE: AHP). In an attempt to oust Warner-Lambert's board, Pfizer filed papers at the Securities and Exchange Commission claiming that its offer represents a 25% premium to Warner's price and there's no reason Warner shouldn't accept it.

For its part, Warner told shareholders to take no action, and that it will review the materials being submitted by Pfizer. Warner has hired Bear Stearns and Goldman Sachs (NYSE: GS) as financial advisers on the Pfizer proposal.

Finally, drug maker and drug delivery manufacturer Alza (NYSE: AZA) and healthcare products maker Abbott Laboratories (NYSE: ABT) called off their $7.3 billion merger, announced in June, after being unable to satisfy the Federal Trade Commission's antitrust concerns. Both said they're ready to go it alone.

Abbott makes the nutritional supplement Ensure, baby formula Similac, as well as a line of pharmaceutical products. Alza makes the delivery technology used in the Nicoderm patch and diet drug Acutrim. It also makes its own line of cancer-fighting drugs.

Alza said it will miss expectations in the fourth quarter because of activities related to the merger. The company will also take a $10 million to $15 million charge in the first quarter.

The consolidation craze in the pharmaceutical industry is being driven by the high cost of developing drugs and the need to have a broad array of drugs in the market as well as in development.

News to Go

Local telephone and communications company Bell Atlantic (NYSE: BEL) may receive approval from the Federal Communications Commission to enter the long distance market in New York as early as next week, The Wall Street Journal reported. Bell Atlantic would become the first baby bell to enter the long distance game.

Leading U.S. sneaker manufacturer Nike (NYSE: NKE) reported better-than-expected earnings for its fiscal second quarter. The Beaverton, Oregon shoe maker reported net income of $107.5 million, or $0.38 per diluted share, while analysts expected earnings of $0.34 per share. Revenue jumped 8% to $2.1 billion as global footwear sales soared.

Online publishing and graphic design company Adobe Systems (Nasdaq: ADBE) reported earnings (excluding restructuring charges and other gains and losses) of $0.46 per diluted share, ahead of analyst estimates by $0.04 per diluted share for the fourth quarter. The company reported strong performance in all application product lines as the Internet has driven demand. It also announced that Charles Geschke, company president and cofounder, will retire in March 2000. Adobe cofounder and Chief Executive John Warnock will assume the role of president.

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