Why the Critics Are Wrong on Pharma Deals

This column was originally published on RealMoney on March 13 at 8:37 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

We've seen lots of analyst criticism of the Sierra Health (SIE Quote)-UnitedHealth (UNH Quote) and Organon-Schering-Plough (SGP Quote) deals. I think the critics will be dead wrong.

Here's why.

First, both UnitedHealth and Schering-Plough both needed to do deals; people need to know they had a pulse.

UnitedHealth has been a pariah since the options-backdating scandal, and it has failed to grow at its old pace in some of its businesses. This deal jumpstarts the corporation into faster growth, and it shows that UnitedHealth isn't paralyzed anymore. Given that the deal is for cash, I am less worried about stagnation in the common, as one of the chief reasons to own this stock is its aggressive buyback.

Schering-Plough has been criticized over and over again for not having much of a pipeline. No longer, although there's a perception that Organon doesn't have much of a pipe itself and is troubled company.

But Schering-Plough CEO Fred Hassan has had a history of acquiring troubled companies and turning them around, including the one he is at now, which is one of the few pharmas that has actually made you money in the past few years.

In fact, both companies are seasoned acquirers and are more able to create real value from deals than most. That's why these stocks did not get hit yesterday, and UnitedHealth actually traded higher.

Not all deals are bad. It depends on the price and the ability to integrate. I am not certain about the price of either, although Sierra was at this price not that long ago.

I jus think the critics are wrong, and the market, which liked these two deals, is right. That's often the case, and I will take the market's judgment any day of the week.

Random musings: Footrace for oblivion? And here I'm talking about Accredited Home Lenders (LEND Quote), NovaStar (NFI Quote), Fremont (FMT Quote). Of course. What I find amazing about these companies is that none of its CEOs comes out and says, "Wait a second, our loan process was rigorous and we don't have as many defaults as others." None does it; that's why the pessimism is warranted. ... The banks are in a big rush to get what they can out of every one of these stupid subprime lenders. Some of them probably wouldn't even be in a jam here, but we have to remember that when any bank calls the loan, almost no one has the money to pay. ... If you want to follow my five oil picks from last night's show, Stockpickr makes it easy for you. ... Dick's (DKS Quote) reports one bad quarter in three years, and that's the one before which I highlighted the stock. Still angry about that.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Accredited Home Lenders, New Century and NovaStar to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.