NEW YORK (CNNfn) - Leading chemical company DuPont Co. shed its drug unit Thursday, announcing an agreement to sell the operations to drugmaker Bristol-Myers Squibb Co. for $7.8 billion in cash.|
DuPont said it would use a portion of the proceeds to complete its current $2.5 billion share buyback program, announced last July. It also announced a new $2 billion share buyback program.
With a market capitalization of $48.8 billion, the additional share repurchase would constitute about 4 percent of shares outstanding at current prices.
DuPont (DD: Research, Estimates) , the nation's largest chemical company, produces such well-known products as Lycra, Dacron, and Teflon. Company executives had said they wanted to sell or spin-off its drug operations to concentrate on its core chemical business, and the deal with Bristol-Myers Squibb (BMY: Research, Estimates) has been rumored for several days.
Besides prescription drugs, New York-based Bristol-Myers Squibb's key products include Clairol beauty products and Excedrin pain reliever. A company statement said the new unit had 2000 sales of $1.5 billion, and that assuming the deal closes near the end of this year, that its 2002 earnings per share would be flat to reduced 3 cents due to the acquisition. But it said it believed it would see EPS gain by 6-to-8 cents in 2003, and that earnings growth would be accelerated after that.
Analysts surveyed by earnings tracker First Call expect Bristol-Myers Squibb to earn $2.41 a share this year, $2.69 a share next year and $3.06 in 2003.
DuPont's statement said the transaction will add to its earnings per share in 2002, but the size of the increase will depend upon the closing date of the deal and the timing and pace of the share buyback.
The deal should help both DuPont and Bristol-Myers Squibb, according to Bob Kirby, healthcare analyst for Edward Jones for Edward Jones.
"I think both companies are big winners. However, Bristol I think is more of a long-term winner," he told CNNfn's Street Sweep. "Upfront the price wasn't cheap. But certainly given Bristol's strong presence fighting AIDS and cardiovascular disease, I think this deal makes sense for the long run for Bristol. It increases their focus in the pharmaceutical area, and that's where they're at their best."
Kirby said that Bristol-Myers Squibb has had some set-backs in new product development, and while this doesn't necessarily fill gaps in their pipeline, it's a cost-effective way to play catch-up. (297KB WAV) (297KB AIFF)
Other drugmakers which reportedly eyed the purchase of the unit include Anglo-Swedish AstraZeneca PLC, Germany's Bayer AG, Switzerland's Roche Holding Ltd., France's Aventis SA, and Britain's GlaxoSmithKline PLC.
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Under the deal DuPont will retain its interest Cozaar(R)/Hyzaar(R), an antihypertensive drug developed by DuPont and drugmaker Merck & Co. (MRK: Research, Estimates), and marketed by Merck. Regulatory approval of the sale of the unit is still required.
Shares of DuPont, a component of the Dow Jones industrial average, gained 49 cents to $46.83 in regular-hours trading Thursday ahead of the announcement. Shares of Bristol-Myers Squibb edged up 8 cents to $56.68.