Bristol-Myers Squibb Co. (BMY) intends to split its 83.1% holding in the Nutritional segment which operates under its subsidiary Mead Johnson and develops infant formulas such as Enfamil and other nutritional products. The move is aimed to enable the company to concentrate on its core biopharmaceutical business. The transaction is expected to be accretive to earnings beginning in 2010. 

Under the terms of the deal, Bristol-Myers shareholders can exchange some, none or all of their shares of the company for shares of Mead Johnson common stock tax-free and at a discount. On completion, the exchange offer would enable Bristol-Myers to dispose of its entire holding interest in Mead Johnson. 

For every $1 of Bristol-Myers stock exchanged, stockholders will get approximately $1.11 worth of Mead shares. The offer is set to expire on Dec 14, unless extended or terminated. Bristol-Myers owns 170 million shares of Mead Johnson. The completion of the offer requires at least 144.5 million shares of Mead Johnson common stock to be distributed. 

As a reminder, Bristol-Myers divested 17% in Mead Johnson through an Initial Public Offering in Feb 2009 and raised $720 million. 

The split-off would enable Bristol-Myers to function as a fully independent biopharma company focusing exclusively on its pharmaceuticals segment, which manufactures and sells branded pharmaceutical drugs such as Pravachol for cholesterol reduction, Plavix for hypertension and Erbitux for cancer. 

Even though Plavix is the top growth driver, patent expirations loom large on the company starting 2011 when the Plavix patent expires. Furthermore, the antiplatelet blood thinner indicated to reduce the risk of heart attack in patients with atherosclerosis is facing competition from Eli Lilly’s (LLY) Effient, which was launched recently. 

The company has lost patent protection on products worth about $4 billion in sales over the past four years. Drugs such as Cefzil, Paraplatin, Glucophage, Monopril and Taxol are also experiencing declining sales due to generic competition. However, the $1 billion addition in cost cuts in 2012−2013, the extension of the Abilify agreement with Otsuka, and the acquisition of Medarex indicate that management is taking meaningful steps to prepare for the loss of exclusivity of Plavix. 

Currently, we are Neutral on Bristol-Myers.
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