Bid for Sterling Boosts Pharmaceutical Stocks
A $4.2-billion bid for Sterling Drug Inc. by the huge Swiss pharmaceuticals firm F. Hoffmann-La Roche & Co. has shocked an industry that has long prospered under a hands-off policy toward unfriendly acquisitions, industry officials and analysts said Tuesday.
“The pharmaceutical industry has long had a kind of tacit agreement not to step on each other’s toes,” said a drug industry source who asked not to be identified.
The news of the tender offer sent Sterling’s stock sharply higher and helped bolster other drug company shares as well in the belief that the bid could be the first of many this year as foreign firms take advantage of the weak dollar to snap up U.S. companies.
Sterling Drug stock soared $17.25 to close at $74.125, a gain of 30% that made it the biggest advancer on the New York Stock Exchange. It was also the most active issue on the Big Board on volume of 3.7 million shares.
Highly Fragmented
The rise above the tender offer level of $72 a share was based on analysts’ expectations that the bid will have to be raised.
David Saks, a drug analyst for Saks Healthcare Advisers in Rivervale, N.J., said the offer by Hoffmann-La Roche could spark a bidding war for Sterling, which might seek a white knight. He said Unilever N.V., the big Anglo-Dutch consumer products company, Procter & Gamble and Revlon Group could join a contest for Sterling.
One analyst said Sterling, whose brand names include Bayer aspirin, Phillips Milk of Magnesia and the Lysol line of disinfectants, could be worth as much as $5.4 billion.
Analysts note that the drug industry is highly fragmented. Industry leader Merck & Co., for example, holds less than a 5% share of the $35-billion world pharmaceutical market. The top 25 drug companies in the world account for only a 42% share of the world market.
But the industry could now change dramatically.
Drug industry officials said that they had been expecting some takeovers in the business following the beating U.S. pharmaceutical companies took in October’s stock market crash and the instability of the dollar.
Hostile Takeovers
“Most of us are bargains at today’s stock prices, especially to a foreign investor,” said Susan Atkins, vice president of public affairs for Rorer Group, one of several drug companies trying to buy A. H. Robins & Co. and itself a target of takeover speculation.
The lower dollar makes purchases of U.S. companies less expensive for foreign firms.
A marketing executive at another large U.S. drug company said that he expected the hostile offer for Sterling to begin a “game of musical chairs” in the industry. “There has been a lot of general talk recently about these kinds of things, and the whole industry could become consolidated,” he said.
Not surprisingly, people in the industry do not want to see hostile takeovers.
“We have an aggressive acquisition policy but we are not in favor of hostile takeovers, especially in the pharmaceutical industry,” said Atkins, who echoed the sentiments of others in the industry.
