P&G Comfortable As "Niche" Rx Firm: Buys Clairol For Cash, Not Swap
Executive Summary
Procter & Gamble is comfortable with its position as a "niche" player in the pharmaceutical industry over the short term, CEO A.G. Lafley said during a May 21 analysts meeting discussing the acquisition of Clairol from Bristol-Myers Squibb.
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Procter & Gamble is comfortable with its position as a "niche" player in the pharmaceutical industry over the short term, CEO A.G. Lafley said during a May 21 analysts meeting discussing the acquisition of Clairol from Bristol-Myers Squibb. "Right now, we're feeling we're a decent niche player in pharma," Lafley said. The "bigger issue," he acknowledged, "is five, 10 years from now, where are we going to be?" Lafley commented on P&G's position in pharma in response to a question about whether the company considered a business swap in the Clairol transaction. When Bristol announced plans to divest Clairol and the orthopedics division Zimmer in September, the company said it would prefer to trade the divisions for pharmaceutical assets (1 (Also see "Bristol Rx Expansion Plans Include Biologics Manufacturing" - Pink Sheet, 2 Oct, 2000.)). P&G's Rx line, including the osteoporosis agent Actonel (risedronate) and the colitis therapy Asacol (mesalamine), looked like a good fit for Bristol. Lafley pointed out that the healthcare business has been "one of our strongest growers in the last couple years," with Actonel performing well. The product is "definitely going to exceed $100 mil. in sales the first year." The rest of P&G's product line has "high market shares and good margins," he added. A year ago, P&G contemplated a significant expansion of its pharma division under former CEO Durk Jager, when the company discussed a potential white knight bid to acquire Warner-Lambert and American Home Products. Pfizer ultimately prevailed in acquiring Warner-Lambert, and AHP remains independent. The Clairol sale and the pending Zimmer spin-off to shareholders mean that Bristol will complete its divestment plans without the direct product line enhancements it hoped to obtain. P&G will pay $4.95 bil. for Clairol, which will add at least $3 bil. (after taxes) to Bristol's cash reserves. The enhanced cash position will make it easier for Bristol to pursue acquisitions to expand its presence overseas or in biologics manufacturing, two goals outlined by the company in September. The company's recent use of cash has been in share repurchase programs (2 (Also see "Investing in a down market" - Pink Sheet, 30 Apr, 2001.)). |