Drug Merger Euphoria Sends Almost Everything Up
"As soon as I came to the City," David Smith, managing director of
Cantor Fitzgerald's
London office, recalled this morning, "I was told you never short
Beecham
."
Sage advice. Friday's late-breaking news that
Smith-Kline Beecham
(SBH) - Get Report
up 1 7/16 to 118 13/16,
Pfizer
(PFE) - Get Report
up 2 7/16 to 84 3/16,
Bristol-Myers Squibb
(BMY) - Get Report
up 3 1/2 to 103 3/16,
Johnson & Johnson
(JNJ) - Get Report
up 2 to 68 15/16,
Eli Lilly
(LLY) - Get Report
up 3 to 70 5/8,
Pharmacia & Upjohn
(PNU)
up 1 7/16 to 40,
Schering Plough
(SGP)
up 4 11/16 to 77 1/16, and
Warner Lambert
(WLA)
up 6 to 156 1/2.
That big list is one of the reasons the market may be justified in this round of merger frenzy, according to Jeffrey Applegate, chief investment strategist at
Lehman Brothers
.
"You still have a fragmented industry," Applegate said of the drugs. "This industry is unlike, say, the food industry. The players in the food industry, they already have large single- or double-digit market shares." In contrast, a combined SmithKline and Glaxo, which would be the world's largest drug company, would only hold 7.5% of the global market share. There's room for plenty more mergers as the global drug companies vie to be the biggest.
"I think that this drug story will play again and again," said Cantor's Smith. "No one wants to get left behind -- in this business big is beautiful. I suits them with their research and development. It suits them as they bring new drugs to market. All of this guys are going to have to join up with someone. We're going to merge them up, and demerge them in a few years, just to keep the cycle up so my children are employed."
American Home Products
(AHP)
, which SmithKline left sobbing at the altar, was down 2 1/2 to 92 15/16.
* * * * *
Despite all of the recent attempts at damage control, on a day when most stocks are higher, paired-share REITs are again suffering on concern that they will lose their special tax status.
Starwood
(HOT)
was down 1 5/8 at 52 5/8 ,
Meditrust
(MT) - Get Report
was off 15/16 at 32 1/8,
Patriot American Hospitality
(PAH) - Get Report
was off 5/16 at 25 5/16 and
First Union Real Estate Investments
(FUR)
was down 11/16 to 73,
Halliburton
(HAL) - Get Report
was down 13/16 to 44 1/8 and the
Philadelphia Stock Exchange Oil-Service Index
was off 0.45 to 96.92.