Saturday, March 7, 2009

Proving P.T. Barnum* Right, Once Again. . . .

As a goofy parlor game, about two-and-a-half months ago, I set out -- by product lines -- some guesses at 2008 through 2010 revenue streams, from various Schering-Plough franchises. I did so with the express purpose of helping the investing public (and analysts and bankers, too!) make more informed guesses at which pieces of Schering-Plough would fetch the most -- and the least -- in some mythical bust-up scenario.

Yesterday, Barbara Ryan apparently reinvigorated this tired old parlor game, with a renewed rumor piece -- since published by Bloomberg -- and so, I thought we could all play along. Any new guesses?

Obviously, I mean other than the current flavor of the month: JNJ/MRK combining to split-off the Consumer Products lines, from the Cholesterol Franchise, with each, in order, taking those lines, respectively -- and then either spinning off, or breaking down, the Animal Health and remaining old-line pharma pill businesses.

This goofy rumor leaves the twin problems of:

(1) All that Schering-Plough debt: who, and what, will pay it all off? and. . .

(2)(a) Contingent liabilities a-go-go: who, or what, would be willing to accept ongoing litigation responsibility for the current 145-plus suits (and the potentially $2-plus billion in payouts -- upon settlement, or trial)?

(2)(b) Perhaps more importantly, what would all those plaintiffs' lawyers demand/be willing to accept, as transaction hold-backs, escrows or assurances of adequate liquidity and solvency (you know they'll file motions opposing any transaction that decreases their potential recovery pots!) -- and what would Judge Cavanaugh be willing to sanction, as a fair order, in this regard?

Really, people, the rocky-road to closing any such rumored deal runs straight through the plaintiff-lawyers' front yard. Um, good luck with that.

Thus, as I say, this is very unlikely to happen -- Friday was a sucker's bounce, in Schering-Plough stock prices.


* He supposedly said "There's a sucker born every minute. . . ."


Anonymous said...

JNJ would also hold the rights to Remicade and its backup.

I agree, too much debt and potential liability with lawsuits to permit acquiring.

Nathan said...

Let me get this strait: You think that Merck and J&J wouldn't aquire Schering because of 145 lawsuits and $2 billion in "potential" liability?

Well, I suggest you have a second look at the PFE/WYE deal. WYE has thousands of pending lawsuits (PremPro, Fen-Fen, and others), just lost a Supreme Court decision, and has easily $10 billion+ in liability potential. Did that stop Pfizer? I wish it would have....

Nathan said...

Funny timing - did you read the news this morning? It looks like Merck pegs the value of SPG at exactly $41.1 billion. Are you going to rename your blog to "Merck got plowed" or to "Condor got plowed"?

Anonymous said...

I suggest renaming to Smirk ate a Shearling

Condor said...

I think the blog name is just right -- $32/share is what all those Goldman, Sachs clients paid for SGP, pre Organon.

Now, Merck values Schering-Plough PLUS Organon, at just $16.6 billion more than Organon, was worth, alone. Sad. But proof of severe over-paying (and now, poor negotiating, in the bust-up) by CEO Hassan and his team. They did have a very weak hand, thought, truth be told.

Pretty pathetic. See new post, immediately above -- Thanks, one and all, for the input!


Condor said...

Well, this will all be very droll.

Nathan -- y a w n:

Was I really all "that" wrong, here?

Lawsuits may equal $2 to $4 billion.

Debt equals $8.5 billion, bare minimum.

An approximately 12 percent "premimum" (when all the debt is factored out -- see, Nathan, that has to be paid BACK, it does not count in the transaction value -- over Friday's close); and a significant "haircut" -- if thus valued at $19.80, when compared to $27.50 (the last public offering). . . .

Note that Merck is already well into planning for the bust-up of parts of itself, and/or Schering-Plough, to pay down the debts.

[See the top of this blog -- 4 PM EDT 03.09.09 -- per Bloomberg.]

And the deal isn't even eight hours old yet.


Stephanie said...

I vote for smirk ate a shearling!