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Bonds News

RPT-IPO VIEW-Mead Johnson IPO to build up Bristol Myers cash

(Repeating item that initially moved on Friday)

NEW YORK, Feb 6 (Reuters) - Bristol Myers Squibb BMY.N is spinning off its children's and infant nutrition unit in a planned initial public offering this week that would fill its coffers with cash at a time of increasing industry consolidation.

The unit, Mead Johnson Nutrition MJN.N, known for such brands including Enfamil, is aiming for a $562.5 million IPO that would make it the largest in the United States since last April.

Large pharmaceutical companies are facing the expiration of profitable drugs in the coming years, with only a thin pipeline to replace them, so many are looking at acquisitions.

For example, Bristol’s blood thinner Plavix, which had sales of $1.47 billion in the fourth quarter, loses its patent protections starting in 2011.

“It gets them cash -- and these days, with capital costing what it does, this makes sense,” Les Funtleyder, a pharmaceuticals analyst with Miller Tabak & Co said, referring to spinoffs aimed at raising cash for acquisitions.

Funtleyder believes Bristol might not necessarily be looking to buy out a company now but still wants the cash on hand, just in case.

In January, Pfizer Inc PFE.N said it would buy Wyeth WYE.N in a $68 billion deal that would it give it access to Wyeth's Prevnar childhood vaccine and Enbrel arthritis drug.

DIVIDE AND CONQUER

So-called carve-outs, when a company spins off a unit and takes it public, are a time-honored way for a company to raise cash as it seeks to shed units and work on its main business.

“Bristol Myers’ strategy is to focus more on pharmaceuticals than nutritionals,” Funtleyder said, adding that new drugs are more profitable than children’s nutrition.

Some of the biggest IPOs of all time have been carve-outs, such as Philip Morris Cos' PM.N $8.68 billion spin-off of Kraft Foods KFT.N in 2001.

Various drug companies have also carved out units.

Bristol itself spun off its orthopedic device marker Zimmer Holdings Inc ZMH.N in 2001, while Merck & Co MRK.N carved out pharmacy benefits manager Medco Health Solutions Inc MHS.N in 2003.

Mead Johnson’s pedigree, along with its sales, give it a good shot at successfully launching its IPO in a market that has seen only one U.S. stock flotation since August, analysts said.

Mead Johnson’s sales rose 14 percent to $2.1 billion in the first nine months of 2008. The company would be the first stand-alone unit in the fast-growing children’s nutrition sector to be publicly traded.

Other makers of children's and infant's formula include Abbott Laboratories ABT.N, Wyeth and Nestle SA NESN.VX.

Yet Mead Johnson still had to shrink its estimate of the IPO’s proceeds from $1 billion when it originally filed in the fall, a concession to the tough market.

“They could be doing a much bigger IPO,” said Scott Sweet, senior managing partner with research firm IPO Boutique.

CASH COW

After the IPO, Bristol will still have plenty of room to raise more money off of Mead Johnson, through secondary offerings, particularly if the markets recover and follow-on share issues fetch high prices.

Bristol would still own about 87.5 percent of Mead Johnson, and retain 98 percent of voting power, according to a regulatory filing.

Major companies sometimes spin off companies gradually over several years to generate a steady flow of cash.

For example, Nestle SA has used its remaining stake of its Alcon Inc ALC.N eye-care unit, which it spun off in a $2.53 billion IPO in 2002, as a cash cow. Last year, the Swiss food company said it could use proceeds of subsequent sales of its Alcon stake for acquisitions.

Still, the fact that Bristol will keep such a large stake could also hurt Mead Johnson when the IPO prices on Tuesday, an analyst said.

“This is definitely not a clean spin-off; Bristol Meyers will be in firm control,” said Sam Snyder, an analyst with Greenwich, Connecticut-based Renaissance Capital.

“If there is any overhang, it is that secondaries could put downward pressure on share prices,” he said.

Nonetheless, Mead Johnson’s lineage and investors’ familiarity with its name will help the IPO, Sweet said.

“The road show will be augmented by the mere mention of Bristol Myers Squibb being their parent,” he said. (Editing by Matthew Lewis and Maureen Bavdek)

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