Friday, January 9, 2009

Contrarianism Lives!

There seems to have been a lot of writing recently about the lack of merger activity and what may be possible. Amgen seems to be getting a bit of ink too, but, then that one always seems to. First, Julie MacIntosh of the Financial Times published an interesting piece ( ) concerning this subject on their website this January 6th. Her take was that the mergers and acquisitions market would be slow in coming back as companies assess risks and investment advisors want to appear cautious in recommending deals. Earlier in the week, Andrew Jack, also of the Financial Times speculated ( ) about Pfizer entering into a large acquisition of a rival and what it might lead to in a pharmaceutical industry shying away from the large deals that spawned many of today’s Big Pharma companies. His musings were based on comments by Jeff Kindler, Pfizer’s CEO. He noted debates in the investment community about Pfizer acquiring Amgen. (CNBC had also reported this story.) As I wrote earlier, that’s an old story heard many times before.
What I find interesting here is how from very substance, a lot of speculation is going on. As I blogged earlier, I don’t think there is much of a market for large deals in the pharmaceutical industry right now. I find myself more in agreement with Julie MacIntosh about deal prospects in the industry. That is, the length and breadth of this recession will determine people’s willingness to return to the deal markets. Like I wrote earlier, she quotes Mark Shafir, the global mergers and acquisitions head at Citibank, who believes that bankrupt or near bankrupt companies will provide the first wave of opportunities. He goes further saying that cash rich companies may then begin to prowl for values. But, all this will take time. While these activities may start this year, I don’t think that they will culminate in any significant deal activity until 2010 at the earliest.
I know that some people have been writing about 2009 being the big year for drug company acquisitions. I’m just not buying into it. Let’s see what comes of these vaunted pipelines. Let’s see what happens when a President Obama instructs Medicare to negotiate drug prices with the drug companies. (I’ve always found it interesting that when corporations squeeze their vendors for lower costs, it’s capitalism; when the government does it, it’s Marxism.) As this blog has repeatedly said over the last year, there is too much capacity in the drug industry. Whatever deals happen this year will be restructurings designed to handle this fundamental problem.
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Contributed by Guy de Lastin

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