American Cyanamid Consents to Takeover : Pharmaceuticals: Acquisition comes after rival American Home Products sweetens deal to $9.7 billion.
Ending a two-week hostile takeover struggle, American Cyanamid Co. consented Wednesday to be acquired by drug industry competitor American Home Products Corp. in a $9.7-billion deal.
The merger--the second-largest ever in the U.S. drug industry--brings together the makers of such products as Advil, Anacin, Robitussin and the Norplant contraceptive.
Half of the $12.5 billion in revenue for the combined firm will come from a broad line of products, including consumer health goods, agricultural chemicals, surgical devices and food brands such as Chef Boyardee spaghetti and Gulden’s mustard.
The remainder will come from prescription drugs, an industry that in the past year has been involved in a flurry of consolidations in an effort to better cope with medical cost cutting and health reform.
During the past few weeks, American Home, based in Madison, N.J., has twice sweetened its buyout offer to Cyanamid shareholders, resulting in the $101-a-share cash offer approved by directors of both companies. The price is about $600 million more than American Home’s initial bid of $95 a share offered Aug. 2 and about 60% more than Cyanamid shares were trading for in early August.
Acknowledging the inevitability of being acquired by someone after American Home’s first bid, Cyanamid management reportedly tried unsuccessfully to find a “white knight,” or a friendly buyer that would offer terms more to Cyanamid’s liking.
Its cool response to American Home raised the ire of some shareholders, who filed six lawsuits against the Wayne, N.J.-based firm in state court in New Jersey. The suits claim that Cyanamid management did not act in the shareholders’ best interest.
Cyanamid’s board, Chairman and Chief Executive Albert Costello said in a statement, concluded that “a combination of the two companies would maximize value for our stockholders and lead to the creation of a highly competitive participant in our markets.”
Shares of American Home Products rose 37.5 cents to $59.25 in New York Stock Exchange trading Wednesday, while Cyanamid shares jumped $2.125 to $96.125 on the Big Board.
American Home Chairman John Stafford said the merger “will result in a stronger company, better situated to compete in the rapidly evolving health care marketplace.”
That explanation has become commonplace in a number of recent drug industry deals, as firms seek ways to cope with demands by managed-care companies, such as health maintenance organizations, and by a growing number of government and private employers, to cut their prices. Drug makers are also concerned about the prospect of federal health reform.
Similar concerns were cited by Eli Lilly & Co. when it bought PCS Health Systems, a drug benefit management firm, from McKesson Corp. for $4 billion in July. And Merck & Co. was responding to the same market forces when it acquired Medco Containment Services, a mail-order drug firm and drug benefit manager, for $6 billion last year.
The largest drug industry merger was Bristol-Myer’s $12.1-billion purchase of Squibb in 1989.
Analysts said both American Home and Cyanamid suffer from a dearth of new, potentially profitable drugs making their way to market. Both companies are also coping with competition from lower-cost generic drugs as U.S. patent protection on existing drugs expires.
Some analysts said the merger, by creating a company with a broad product line, enhances its marketplace clout with managed-care companies. Managed-care firms also often prefer to deal with a smaller number of suppliers rather than many suppliers.
But others saw little positive in the deal. Hemant Shaw, an independent drug analyst in Warren, N.J., said the merger “does not give (managed-care firms) what they are looking for, which is innovative drugs and lower prices. . . . A broad portfolio isn’t that critical.”
However, Shaw said American Home could achieve significant savings by slashing costs. He said he expects significant job cuts as American Home moves to eliminate redundant jobs in administration, marketing and other areas.