Schering-Plough's all-too-spectacular fall from grace
It's hard to believe that Schering-Plough Corp paid the equivalent of $16.1 billion less than four months ago to buy Akzo Nobel NV's Organon drug unit. The rest of the drugmaker is now valued at less than half that price.
Schering-Plough hit the skids in January after a study determined that Vytorin - a combination of two medicines for cholesterol, the company's Zetia and Merck & Co's Zocor - was no better than Zocor itself.
The loss widened on Monday after a committee of the American College of Cardiology recommended that anyone taking Vytorin or Zetia, both of which Schering-Plough and Merck sell jointly, move to older and cheaper pills that work equally well. The panel also recommended that doctors limit prescriptions for the two drugs, whose sales totaled $5.2 billion last year.
Schering-Plough tumbled 26 percent, the biggest loss since at least 1980. The plunge reduced the company's market value to just $7.3 billion more than the price paid for Akzo's Organon BioSciences NV unit, a maker of birth-control pills.
Merck also took quite a hit as the availability of generic versions of Zocor may limit any pickup in sales. Nine companies sell simvastatin, the generic form, according to data compiled by Bloomberg. The stock dropped 15 percent, its biggest drop since the Vioxx painkiller was withdrawn in September 2004.
Merck, based in Whitehouse Station, New Jersey, is in a far better position to weather the setback. Three other drugs - Singulair for allergies, Cozaar and Hyzaar for hypertension, and Fosamax for osteoporosis - were among the 25 biggest sellers worldwide last year, Bloomberg's data shows.
Schering-Plough had no solo appearances on the top-25 list. Vytorin and Zetia, whose sales are split between the company and Merck, accounted for 80 percent of earnings last year. Remicade, an arthritis treatment that the company sells outside the United States, Japan and some other Asian markets, was its only other drug in the lineup.
The prospect of lost Vytorin/Zetia sales sent Schering- Plough's stock to its lowest price since September 1996. Shares that the company sold in August to help finance the purchase of Organon, based in Roseland, New Jersey, have fallen 48 percent.
About the only support for Schering-Plough these days may come from the company's decision in July to scrap a so-called poison pill takeover defense. That said, the company's fast-shrinking market value may scare away any potential suitors.
Sweden's government may emerge as the only winner from the auction of Vin & Sprit AB, the maker of Absolut vodka, which the state agreed to sell on Monday at the highest price for a liquor company in almost three years.
The 5.28 billion euros that Pernod Ricard SA, the world's second-largest distiller, agreed to pay for the Stockholm-based company equals more than double its own ratio of earnings before interest, taxes, depreciation and amortization, a measure of cash flow.
Pernod said the takeover price amounted to 20.8 times Ebitda before cost savings. The Paris-based buyer, whose brands include Chivas Regal whiskey and Wild Turkey bourbon, is valued at only eight times Ebitda, according to data compiled by Bloomberg.
The gap might close as the company sells brands other than Absolut, along with cutting expenses. Fortune Brands Inc, which collaborated with Pernod on the $13.3 billion purchase of Allied Domecq Plc in July 2005 and also made a bid for Vin & Sprit, is one potential buyer. Even so, Pernod can't afford any mistakes.
Fresh & Easy Neighborhood Market, the US supermarket chain started by Tesco Plc, has included a blog on its website for about 10 months. Judging by the drop in Tesco's share price on Monday, it hasn't attracted many readers.
Tesco, the United Kingdom's largest grocery store owner, suffered a 2.9 percent loss. The Cheshunt, England-based company's shares hit bottom about two percentage points above this year's low, reached on March 17.
The decline followed a weekend report in the Telegraph newspaper that Fresh & Easy halted its rollout for three months.
The story referred to a blog entry that Simon Uwins, the chain's marketing director, made four days earlier.
"We've given ourselves a little bit of time to kick the tires, smooth out any wrinkles, and make some improvements that customers have asked for," Uwins wrote. He wasn't more precise.
The chain wanted to take a break after starting 50 stores and already has opened 59, the posting said. Maybe Tesco would have fallen further if not for that bit of detail.
David Wilson is a Bloomberg News columnist. The opinions expressed are his own.
(China Daily 04/02/2008 page16)
