Sunday, August 15, 2010

Pfizer Vs. Merck, Part II -- I Don't Want To Bury My Lead. . .

Rather than continue to wallow in all the weedy details, below, I'll simply pull my thesis forward, here:

. . . .Merck has taken (on a proportionate basis) much bigger writeoffs, on intangibles -- (i.e., one time cash flow enhancing items) -- in connection with busting up Schering Plough (a $41 billion transaction), than Pfizer has taken, with regard to Wyeth (at $68 billion).

Specifically, $2.3/$41 equals a 5.6 percent writeoff ratio, on the legacy Schering-Plough assets, as opposed to a mere $2.1/$68 or 3.1 percent writeoff ratio at Pfizer, on Wyeth. . . and those are one-time only cash bumps.

Moreover, while that created "cash-flow avalanches" -- for both companies in Q2 2010, Pfizer is better suited to withstand the coming patent cliff, with its stronger sales growth, larger girth, world-wide market-leading positions and stronger balance sheet, overall.

I still think Merck has a little room to rise (to near $37), in its NYSE-quoted stock price, but it is preposterous that Pfizer's market cap is only about 20 percent higher than New Merck's, at the moment (at around $16/share -- the NYSE Friday closing price for Pfizer). Preposterous.

[By the way, one more value proposition note, here -- according to Linda Johnson of the AP, GSK just passed Merck, as the world's No 1 vaccine maker, by revenue. Ouch.]

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