Drug Merger Euphoria Sends Almost Everything Up

Author:
Publish date:

"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.