Questran -- One Of The Original Cholesterol Lowering Drugs  -- From Bristol Myers

Bristol-Myers Shares Decline 15%;
Takeover Talk Sweeps Wall Street

As Bristol-Myers Squibb Co.'s stock sank almost 15% following the company's latest earnings warning, executives worried about takeover speculation and hunkered down to contemplate further changes in management and strategies to help it remain independent, according to a person familiar with top management.

Chairman Peter Dolan Thursday was directing his focus internally on fixing the company and repairing badly damaged morale, while speculation swept Wall Street that the company could be a takeover target. On Wednesday after the market's close, the New York drug company shocked investors by projecting that its earnings this year may amount to half of last year's and announcing the departure of the president of pharmaceutical operations.

The shares slid in response. Bristol's stock ended at $32.15, down $5.55 in 4 p.m. New York Stock Exchange composite trading. The company's stock is off 46% from its 12-month high of $60 and now has a market capitalization of about $78 billion. The selling was accompanied by withering attacks from analysts and money managers who voiced their skepticism that Mr. Dolan can turn the company around, and predicting that the company would become the target of a hostile takeover bid. Speculation centered on two European drug companies, GlaxoSmithKline PLC and Novartis AG.

"It's not possible for it to survive as it is. The stock is too cheap," said Hemant Shah, an independent pharmaceutical analyst in New Jersey. "I am convinced that six months from now, we won't have a Bristol-Myers Squibb."

The company said it won't comment on takeover rumors but it has said it isn't interested in a merger with another pharmaceutical firm. A person familiar with the top management said emphatically that Bristol-Myers "is determined to remain independent," and is putting in place the management and strategies to ensure that.

Standard & Poor's announced it had put Bristol-Myers's corporate credit rating on CreditWatch, which means it is considering downgrading the company's triple-A rating. This would be a big blow for Bristol-Myers, which for years has been one of less than a dozen major corporations in the world with triple-A ratings from both S&P and Moody's Investors Service. Losing its top-notch ratings would both wound its pride and make borrowing more expensive.

Standard & Poor's, however, said the company's A-1-plus short-term corporate credit and commercial paper ratings wouldn't be affected.

The 46-year-old Mr. Dolan, who took over as chairman and chief executive just last May, declined to be interviewed. Previously, he has said he believed the company didn't need to merge, and that a merger would cause more distractions and other problems than it solved.

Analysts weren't thrilled with the news that Mr. Dolan -- who has little pharmaceutical background -- would take control of that operation from Richard Lane, the pharmaceuticals president who will be leaving the company. "So that's supposed to make us feel really comfortable?" asked Barbara Ryan, an analyst at Deutsche Banc Alex. Brown.

Mr. Dolan will have some help: Donald J. Hayden, executive vice president, was named to head the North American medicines business. Mr. Lane couldn't be reached for comment.

Ms. Ryan and others on Wall Street said Mr. Dolan needed a "sacrificial lamb" to blame for the company's troubles and so Mr. Lane's departure made sense. But they said they wouldn't view any other departures favorably, in particular that of research chief Peter Ringrose, who joined from Pfizer Inc. in 1997.

"He needs to retain the people he has left because so many key people have already left," said C.J. Sylvester, an analyst with UBS Warburg.

Wall Street was abuzz Thursday with speculation over which company might make a takeover bid for Bristol-Myers.

"The question is whether there is any other way out," besides a takeover, said Viren Mehta, an analyst for Mehta Partners in New York. He said he believed Bristol-Myers's shortage of new products "creates an untenable situation" for the drug maker.

Takeover speculation focused on GlaxoSmithKline, Novartis, Sanofi-Synthelabo SA and Pharmacia Corp. Spokesmen for all four companies declined to comment on whether they were eyeing Bristol-Myers.

London-based GlaxoSmithKline urgently needs to fill its late-stage pipeline and has always wanted to boost its position in the crucial area of cardiovascular drugs, where Bristol-Myers has a strong franchise.

Novartis of Switzerland has said before that it is prepared to make a large acquisition because it wants to expand its presence in the U.S., but its first priority is to build its U.S. business internally.

French drug maker Sanofi-Synthelabo already co-markets two big-selling drugs with Bristol-Myers. It has a rich pipeline but has almost no sales force in the U.S.

Pharmacia, meanwhile, has a growing cancer franchise and may see Bristol-Myers as a means to leap into the top tier of the oncology world. Pharmacia, based in Peapack, N.J., is headed by Fred Hassan, an aggressive executive who has long expressed the desire for another merger.

Any huge drug firm formed by such a takeover might improve earnings by significantly reducing costs. But such a behemoth would require even greater productivity from the research labs to fuel growth. Several recent mergers, such as the one that formed GlaxoSmithKline, have failed to solve the problem of poor production from the drug company labs.

-- Gautam Naik in London, Vanessa Fuhrmans in Frankfurt and Scott Hensley in New York contributed to this article.

Write to Geeta Anand at geeta.anand@wsj.com⁹ and Michael Waldholz at michael.waldholz@wsj.com¹⁰

Updated April 5, 2002 8:15 a.m. EST