A buy-out is best for BMY

Dear Mr. Berko: I think I should buy 200 shares of Bristol-Myers whose shares have done nothing during the past five years. My son who is a pharmacist heard that the company may be bought out by another large drug company or there will be a huge management shake-up in process. Either way, it seems that I could make some good money in this stock in the coming year or so. Please give me your advice and your analysis of the company.

S.L. Syracuse, N.Y. Dear S.L.: Bristol-Myers Squibb Co. (BMY-$21.68) is the sequel to a failed drug company called Clinton Pharmaceutical. In 1887, pharmacists William Bristol and John Ripley Myers pooled five grand, bought Clinton and renamed the company Bristol, Myers. The company's first successful national product (Sal Hepatica) a name most of us may recognize, is still used as a laxative, and its second runaway success was Ipana toothpaste (remember the "Ipana Smile"?) that included a disinfectant to protect against bleeding gums. Revenues exploded and after a few small mergers -- plus a few biggies like Clairol in 1968, Squibb in 1989 and DuPont Pharmaceuticals in 2001; revenues became suspended at the $20 billion level.

Even with brand names such as Bufferin, Enfamil, Ban, Capotin, Taxol, Glucophage, Coumadin and Pravachol, and a cornucopia of popular beauty aids, the yahoos who run this company need a lot more oomph to bring it into the 21st century.

I blame BMY's vapid revenue growth and sporadic earnings, on feckless management and a sapless board of directors, all of whom ought to be put in the stocks and publicly whipped by shareholders. Then the millions of dollars in compensation, expenses and stock they've received for their "Three Stooges" guidance must be returned with interest. And lastly, they must agree never to serve on a corporate board again. I can think of no excuse for a respected pharmaceutical company to sit idly by and watch its common stock crash from $75 a share a few years back, to $22 today.

There's got to be major change soon, which must include firing BMY's management. Expenses are too high by half, and while Merck, Forrest, Pfizer, Wyeth, Novartis, Glaxo, etc. enjoy net profit margins between 22 percent and 32 percent, the BMY gang appears content as pigs in muck with net profit margins of 14 percent. Shame!

I'm hearing rumors from analysts at Standard & Poor's, Zachs Investment Research and Bear Stearns that BMY is being evaluated as a takeover/merger candidate by several larger pharmaceuticals: Pfizer, Glaxo-Smith Kline and Sanofi-Aventis.

BMY needs a strong and enthusiastic management team because the current executive corps and its chummy board don't have the candlepower to turn the company around. However management, realizing and submitting to failure, has been busy selling unprofitable assets, shuttering over half its plants and equipment, divesting noncore operations (medical imaging, wound care operations, nutritional products) and reducing its work force by 12 percent.

After paying a dividend of $1.12 for the past six years, Jim Robinson (chairman), Jim Cornfeilus, (chief development officer) and their sycophantic board of directors consented to raise BMY's dividend to $1.24. That's an attractive and dandy yield of 5.8 percent and certainly makes it easier to hold the shares for a while until Glaxo, Pfizer or Sanofi (or some other pharmaceutical) make a move.

If BMY becomes a target, I think the buyout price could come in between $30 and $33 a share. So buy 300 shares quick as a bunny. You may have to sit on it for about a year or so or more but I think the wait could be nicely profitable. I believe that there may be little downside risk to your purchase because the stock seems to have made a strong base at the $20-$22 level.