Bristol-Myers shares rise on plan to divest Mead

CHICAGO (Reuters) - Shares of drugmaker Bristol-Myers Squibb Co (BMY.N) rose nearly 5 percent on Monday, a day after it said it would spin off its 83 percent stake in infant nutrition company Mead Johnson Nutrition Co (MJN.N).

Analysts said the transaction would add to Bristol-Myers' earnings and is consistent with the company's long-term strategy to focus on biopharmaceuticals.

"Our calculations suggest about $0.07 accretion to our BMY 2010 EPS estimate of $2.11, assuming the maximum number of shares exchanged," Wells Fargo analyst Michael Tong said in a research note.

However, the spin-off also removes the company's last source of earnings diversification, said Credit Suisse analyst Catherine Arnold.

Bristol-Myers, whose biggest-selling medicine is the blood clot preventer Plavix, sold its medical-imaging business and Convatec wound-healing unit last year and has been cutting jobs as part of an efficiency drive.

Under the spin-off, Bristol-Myers stockholders would exchange their Bristol-Myers shares for shares of Mead Johnson. For each $1.00 of Bristol-Myers common stock accepted in the exchange, the tendering shareholder would receive $1.11 of Mead Johnson common stock.

Bristol-Myers said it expects to be able to retire a substantial number of its own shares through the exchange.

"This is a transaction that effectively is a large share repurchase," Jim Cornelius, Bristol-Myers' chief executive, said on a conference call with analysts Monday.

RBC Capital Markets analyst Edward Aaron said the spin-off should also be viewed as a positive for Mead Johnson due to its superior fundamental outlook and could lead to takeover speculation. Aaron estimated a takeover valuation in the $60-per-share range.

"Investors might view this transaction as a precursor to an eventual sale of the company," Aaron said.

Mead Johnson could potentially mesh well with France's Danone SA (DANO.PA), which already owns infant nutrition company Royal Numnico, or Nestle SA (NESN.VX), said a source familiar with the situation.

No takeover talks have yet taken place, the source said. Danone denied a media report in September that it has hired an investment bank to weigh a bid for Mead Johnson.

Danone and Nestle could not be immediately reached for comment.

Bristol took Mead Johnson public in February as part of its effort to focus on biopharmaceuticals. Mead, which makes the Enfamil brand of infant formula, raised $720 million from its initial public offering.

Shares of Mead Johnson are up 85 percent from the $24 at which its IPO priced, reflecting the company's strong operating and financial performance, as well as takeover speculation.

Mead Johnson stock was down $1.70, or 3.8 percent, at $43.55 in afternoon trading on the New York Stock Exchange.

Cornelius said the decision to divest Mead reflects Bristol's confidence in the strength of its biopharma business in 2013 and beyond.

"The split is a sign of that confidence, as we have made excellent progress in advancing our biopharma business in addition to the new product portfolio," he said.

Bristol-Myers' shares rose $1.11 to $24.29 on the NYSE.

(Reporting by Susan Kelly; Additional reporting by Jessica Hall in Philadelphia; Editing by Dave Zimmerman, Steve Orlofsky, Gary Hill)