Bristol Keeping Cornelius as CEO

He will take the job on a permanent basis.
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Updated from 1:31 p.m. EDT

Bristol-Myers Squibb

(BMY) - Get Report

has elevated James Cornelius to permanent CEO from interim chief executive, adding stability to corporate management but not necessarily dispelling the notion that the company could be a takeover target.

Cornelius, 63, was named interim CEO after the company's board ousted

Peter Dolan in September. The major reason was a bungled attempt by Bristol-Myers Squibb to delay a generic company's challenge to Plavix, the New York drugmaker's best-selling drug.

On Thursday, the company said Cornelius would serve as CEO through the annual meeting in May 2009. Cornelius has been a board member since January 2005. He was a former chairman and CEO of Guidant, which is now part of

Boston Scientific

(BSX) - Get Report

, and a former chief financial officer of

Eli Lilly

(LLY) - Get Report

.

Cornelius "has brought stability and energy" to Bristol-Myers Squibb, the chairman, James Robinson III, told analysts. As the CEO search progressed, Robinson said "it became increasingly clear that Jim was the ideal person to continue leading our company."

Previously, Cornelius said he wasn't planning to be a permanent CEO, and analysts asked him why he changed his mind. The longer he worked at the company, "the more interested and confident I became" about its prospects, Cornelius said.

Despite takeover rumors, Cornelius sounded like someone trying to guarantee independence. "A key priority of mine will also be management development and succession planning to ensure that the company continues to benefit from strong and effective leadership," he said.

Cornelius reiterated that he envisioned Bristol-Myers Squibb remaining a "freestanding, independent" company.

He previously had remarked that Bristol-Myers Squibb was

not for sale, but the long CEO search process and the rumor that

Sanofi-Aventis

(SNY) - Get Report

had held takeover talks didn't dissuade some analysts from expecting a future deal.

Choosing Cornelius "will likely do little to stop" people from predicting a takeover, says Tim Anderson, of Prudential Equity Group, in a note to clients. He considers Sanofi-Aventis to be the most logical suitor.

Making Cornelius the permanent CEO "might further fuel the notion" that the company will be sold, Anderson says. "This is because many investors won't likely be quick to forget that Cornelius was responsible" for Guidant being sold to Boston Scientific last year.

"While this news doesn't confirm that Bristol-Myers Squibb is open to a deal ... we do not rule out the possibility that

it may still pursue strategic options," adds Roopesh Patel, of UBS Securities, in a note to clients.

Patel has a buy rating in part because he believes the company is a takeover candidate. He says hiring of an outsider would have confirmed that Bristol-Myers Squibb wasn't for sale. Patel's firm has had a recent investment banking relationship.

The major impediment to a quick takeout is the uncertainty surrounding Plavix. The company is

still under investigation by the Justice Department and the Federal Trade Commission for its efforts to prevent Canada's

Apotex

from selling generic Plavix in the U.S. until mid-2011.

But that agreement, which involved payments to Apotex, fell through, and the Canadian company sold generic Plavix for three weeks in August. A court injunction blocked further sales, but Apotex distributed enough cheap copies to

affect the second half of 2006 and the first quarter of 2007.

The injunction remains in force until a court decides a patent challenge vs. Apotex by Bristol-Myers Squibb and Sanofi-Aventis, which licenses Plavix for U.S. marketing. A decision is expected during the second half of the year, and many analysts predict that Apotex will lose.

Bristol also remains under review by the U.S. Attorney's Office for New Jersey after signing a

deferred prosecution agreement in June 2005. This agreement calls for the dismissal of

securities fraud charges after 24 months as long as the company is deemed to have acted properly. The securities fraud charges were related to inventory and accounting irregularities from 1999 to 2001.

"The company continues to comply with the requirements of the deferred prosecution agreement with the U.S. Attorney's Office in New Jersey and expects the

agreement will expire on June 15," Bristol said.

Sanofi-Aventis might have an edge in a takeover sweepstakes because it also licenses the blood-pressure drugs Avalide and Avapro to Bristol for U.S. marketing. Plavix contributed $3.3 billion last year while the others added $1.1 billion. Drugs licensed from Sanofi-Aventis accounted for one-fourth of Bristol's revenue last year.

Sanofi-Aventis and other prospective acquirers must beware that even if they buy all of Bristol-Myers Squibb, they won't have access to all future profits. Since January, it has made two giant deals with

Pfizer

(PFE) - Get Report

and

AstraZeneca

(AZN) - Get Report

, for help in developing experimental drugs for preventing blood clots and stroke and for treating diabetes. Any Bristol buyer would inherit these agreements.

These deals make "the rationale for a merger with Sanofi-Aventis less obvious," says Jami Rubin of Morgan Stanley in a Thursday report. Rubin's firm has had a recent investment banking relationship with the company.