Replies to post #106028 on Biotech Values

[jbog]

Whether it was cash, stock or wooden nickels the fact is that there is huge value loss.

Your reference is correct if we were talking value per share, not the value of all the shares.

[mouton29]

<<jbog, the huge numbers you posted are bogus because only a small portion of what PFE spent in the three big acquisitions was cash. One-third of the WYE acquisition and all of the Pharmacia and Warner-Lambert deals were paid with stock.>>

It is true that Jbog's reasoning is bogus since his comment suggests he thought PFE's acquisition were all cash. Had PFE's acquisitions been all cash, and had the acquisitions been funded by cash on hand or borrowing, the acquisition transactions by themselves (assuming a perfectly rational price) should not change their market cap, since the decrease in cash would be matched by the acquisition of a an asset of equal value. Where the acquisition is for all stock, their market cap goes up by the value of the stock so issued, just as it would if they issued stock for cash in a primary offering and used the cash to acquire the target.

On the actual facts, PFE's decrease in market cap (adjusting for the acquisitions, e.g., from 189 + 210 to 140 to use Jbog's numbers) is even more remarkable than the decline in stock price from about 33 to 17.

[Biowatch]

The WYE purchase was probably cheap, given they'd bought American Home Products AHP, which tanked following the substantial drop in sales of hormone replacement therapies in postmenopausal women, after reports of increased cancer and heart attack risk. WYE or AHP must have had income, patents, employees, and other products that made it attractive, if only from a consolidation/shutting down the competition standpoint.