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Bristol-Myers, Squibb Agree to Merge : $12-Billion Stock Swap Would Form 2nd-Largest Drug Firm

Times Staff Writer

Bristol-Myers--maker of such products as Ban, Excedrin and Drano--and Squibb--a prescription drug manufacturer that makes a widely used high blood pressure drug--said Thursday that they have agreed to a $12-billion stock-swap merger.

The deal would create the world’s second-largest drug company. The two firms said they sought each other’s company to better compete in the worldwide market, joining a consolidation push that is rapidly shrinking the ranks of the drug industry.

The friendly combination would create a company--called Bristol-Myers Squibb--that would have had combined 1988 sales of $8.6 billion and would have a total market value of nearly $27 billion. Its sales of pharmaceuticals alone will still trail Merck & Co. of Rahway, N.J.

“The Bristol-Myers Squibb merger is a unique combination of two successful and financially strong companies,” Bristol-Myers Chief Executive Richard L. Gelb and Squibb Chief Executive Richard M. Furlaud said in a joint statement.

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“We are confident that by combining our respective strengths in pharmaceuticals, health care, consumer products and nutrition, we will create an even stronger competitor in the health-care industry of the 1990s,” they said.

Analysts reacted enthusiastically to the merger, which they said brings diversity to Squibb and increased strength as well as several developing products to Bristol-Myers. Bristol-Myers Squibb would blend Squibb’s near-lock on the hypertension drug market with Bristol-Myers’ consumer products, over-the-counter drugs and cancer-fighting prescription drugs.

Wall Street flocked to Squibb, boosting its stock price $24.75 to close at $112.50 a share on the New York Stock Exchange. Bristol-Myers slipped $2.375 to $49.50 a share.

Gelb Would Be Chairman

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After the merger, which must be approved by shareholders, the two companies would be operated separately with Bristol-Myers maintaining its headquarters in New York and Squibb its base in Princeton, N.J.

Gelb would become chairman and chief executive of Bristol-Myers Squibb and Furlaud would be named president and a director with responsibility for the pharmaceutical business.

Under the definitive agreement signed Wednesday night, Bristol-Myers would exchange 2.4 of its shares for each Squibb share outstanding. In all, Bristol-Myers would issue 242 million shares. Based on Thursday’s closing price, the transaction is worth $11.98 billion.

To discourage any hostile suitors, Squibb granted Bristol-Myers the right to buy about 20% of Squibb’s outstanding stock for $123.90 a share. The two companies said they expect the merger to be completed in October.

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Bristol-Myers and Squibb also signed a separate agreement to market each other’s products. That agreement goes into effect immediately and is not conditioned on completing the merger, the companies said.

Bristol-Myers and Squibb would have a combined sales force of more than 4,000 people. If the two companies had operated as one last year, they would have earned combined income of $1.3 billion and would have had a five-year annual compounded rate in earnings growth of 17.2%, the companies said. They would have spent more than $600 million together on drug and medical research and development, the second highest in the industry.

“This is great for the stockholders,” said David Saks, a New York health-care analyst for Wedbush Morgan Securities of Los Angeles.

“Each offers the other what they need in the future,” said Jay Silverman, an analyst with Nomura Securities in New York. “Bristol-Myers needs new drugs . . . and that’s what Squibb has. Squibb has small size and they need diversity.”

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Squibb has been looking to expand its product line because it is heavily dependent on one drug--Capoten, a hypertension drug that is being threatened by other up-and-comers, he said. Bristol-Myers’ consumer products would help carry Squibb in a slowing economy, he added.

“I don’t think it’s a perfect fit but it might have been one of necessity to compete in the world market,” Silverman said.

The merger would be the largest yet of several in the drug industry.

Among the recent deals: Philadelphia-based SmithKline Beckman Corp. is merging with Britain’s Beecham Group; Dow Chemical is buying 67% of Marion Laboratories, and Eastman Kodak purchased Sterling Drug, besting Swiss drug manufacturer F. Hoffman-La Roche.

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“I think there’s more ahead,” said David H. MacCallum, health-care analyst for the San Francisco-based Hambrecht & Quist investment firm. “It’s important for any company doing research in the pharmaceutical industry to have the ability to be patient and size means you can be patient.”

It takes an average of 10 years and $150 million to get a drug from development to market, said Robert Hanss, an analyst with Edward D. Jones & Co., a regional brokerage based in St. Louis. “If you’ve got quite a few of them, it can get costly,” he said.

Squibb chief Furlaud said company management “has identified the strategic factors that will define the global leader in the pharmaceutical industry of the 1990s--and the formation of Bristol-Myers Squibb will dramatically accelerate the attainment of these strategic objectives.”

“Bristol-Myers Squibb will be a company with the financial stability, the product base, the critical mass in research and the worldwide market reach to excel in what will be a rapidly changing and increasingly global health-care market in the coming decade,” Furlaud said.

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Here are the 10 biggest U.S. pharmaceutical companies, based on 1988 revenue.

Company Revenue Bristol-Myers Co. $5.97 billion Merck & Co. $5.94 billion American Home $5.50 billion Pfizer Inc. $5.39 billion SmithKline Beckman* $4.75 billion Eli Lilly $4.07 billion Warner-Lambert Co. $3.91 billion Schering-Plough Corp. $2.97 billion Upjohn Co. $2.75 billion Squibb Corp. $2.59 billion

* SmithKline Beckman is merging with Britain’s Beecham Group PLC, forming a company with annual sales of more than $6 billion.

Source: Gruntal & Co.

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