Should Sanofi-Aventis Buy Bristol Myers-Squibb?

Bristol-Myers Squibb CEO James Cornelius said in a recent earnings call that due to its healthy cash position it may be on the prowl for biotech acquisitions. That's ironic because it is looking more like BMS itself could be the company to be acquired, possibly by Sanofi-Aventis.

You can read the rumors here and here that suggest Sanofi-Aventis is interested in acquiring BMS.

The scenario is not too unrealistic. Here's BMS's problem: The company's patent on its gigantic blood thinner Plavix runs out in 2011. So even though it had a good third-quarter, Wall Street is still dissatisfied with the company. Scott Richter, a portfolio manager with Fifth Third Asset Management, said BMS needs to do something big enough to "move the needle."

At the same time, BMS recently received about $1 billion in cash for its share of Eli Lilly's buyout of ImClone, which BMS partly owns. This event was good for BMS as a business, but bad for its prospects as a takeover target. In M&A pricing, a company's price adds all the debt and discounts all the cash. (The cash becomes yours when you buy the company, so you take it off the price; and the reverse is true of the debt, which you now owe.) So with the ImClone deal, BMS essentially just became about $1 billion cheaper to buy. In this tight credit market, that is not to be sneezed at.

Sanofi is already on the acquisition trail, having just snapped up Zentiva, the European generics company. The company is now more desperate to somehow replace the loss of its diet drug, Acomplia, which was withdrawn in Europe (and failed to get approval for the U.S.).

Lastly, Sanofi has a new CEO, Chris Veihbacher, and new CEOs have a tendency to feel they have to prove they're new by doing something dramatic. A major consolidation fits that bill nicely.

But why BMS specifically? Well, the two companies are already engaged -- Plavix is a joint venture. And BMS has a new anticoagulant in its pipeline, apixaban. (As BMS itself points out, the chances of that one being launched are currently mixed).

Perhaps it's time to consummate this relationship.