Today’s quote is hard to take as positive considering that it says that the S&P could run down to 1,000 into a breakup of the Euro.  The crux of the report noted, “Although most risk indicators are neutral (sentiment, risk appetite, insider buying) we think on a 3- to 12-month view equities still have the best risk-reward trade-off among the major asset classes – we stay overweight.”

As far as sectors, Credit Suisse calls on the ‘dollar earners’ and is overweight drugs and the key pharma ETF is Market Vectors Pharmaceutical ETF (AMEX: PPH) but that ETF was not mentioned in the Credit Suisse call.

JON C. OGG

There are other drugs in various stages of development as well, and could generate up to $5 billion annually for Bristol-Meyers and Pfizer when the drug is approved. Competing drugs include Pradaxa, from Germany’s Boehringer Ingelheim, which was approved for use last year, Rivaroxaban from Johnson & Johnson Co. (NYSE: JNJ) and Bayer AG (OTC: BAYRY), Edoxaban from Japan’s Daiichi Sankyo (OTC: DSKYY), and Betrixaban from privately held Portola Pharmaceuticals.

The new drug, called apixaban, is competing directly with Pradaxa (dabigatran) as a treatment for stroke prevention due to a condition known as atrial fibrillation. Over 10 million people in the US and Europe are affected by the condition.

And even though apixaban appears at this stage to be more effective than Warfarin, cost will play a role in how widely the drug is eventually used. According to the Wall Street Journal, Pradaxa costs $6.75 a day for its twice-daily dose, compared to just pennies for generic warfarin.
The number of competing products could keep the cost down, but there’s no question that the new drugs will be very much more expensive.

The study is good news for Pfizer, which will soon lose patent protection on its Lipitor cholesterol drug, and Bristol-Meyers, also set to lose patent protection on its best-selling blood thinner Plavix. Pfizer’s world-wide revenue from Lipitor is nearly $11 billion, and Plavix hauls in nearly $7 billion annually for Bristol-Meyers.

Shares of Bristol-Meyers are up nearly 2% at mid-day today, at $29.28, near the top of the 52-week range of $24.97-$29.73. Pfizer shares are up more than 3.5%, at $18.86, in a 52-week range of $15.77-$21.45. Shares of the Pharmaceutical HOLDRs ETF (AMEX: PPH) are up nearly 2%, to $66.91, in a 52-week range of $60.11-$72.71.

Paul Ausick

But there are many other mergers out there that have misleading merger-arb spreads that are indicative of potential trouble as far as a closing at all or at least a risk of the stated merger price being sent to a reduced buyout price. Almost all of these mergers are different than the ones from September that we deemed at risk.

Tribune (NYSE:TRB) $34 buyout from Sam Zell and employees….
Shares reached almost $30.50 yesterday and today’s $29.90 is representative of a 13.7% merger-arb spread for a merger that shareholders have already approved.  24/7 Wall St. has given our own prediction for a buyout price that Sam Zell would likely offer if financing gets tight in this LBO-OPM (leverage buyout, other peoples money) offer.  We are looking at updating this in our New Media/Old Media subscriber letter next week.

PHH Corp. (NYSE:PHH) $31.50 buyout……
With a near-50% merger-arb spread consider this one toast or revised far lower or maybe only even by one of the buyout partners.  The Blackstone (NYSE:BX) buyout is supposedly to be revisited momentarily, although JPMorgan and Lehman that were financing a portion of the deal have (as of last look) maintained a $750 million shortfall on the debt portion here.  General Electric (NYSE:GE) was Blackstone’s buyout partner and the deal as originally intended was going to send the fleet services group (corporate car and truck fleets) to GE and the mortgage business to Blackstone. 

Genesco (NYSE:GCO) $54.50 buyout……
The $1.5 billion footwear acquisition that had been agreed to in June was scheduled to close last month, but would-be acquirer Finish Line (NASDAQ:FINL) and investment bank UBS stalled on the deal because of concerns over Genesco’s financial performance after the $54.50 buyout deal was announced.  At $45.40 there is a 20% merger-arb spread.  24/7 Wall St.’s belief is that Finish Line is in no position to do the deal whether it "states uncomfort and concerns" or not.

3Com (NASDAQ:COMS) $5.30 buyout…..
3Com’s buyout is not at risk over shareholder revolts nor over financing.  This one is at risk over China’s Huawei holding a stake after the Bain Capital buyout over "national security concerns" because many US and partner government agencies still relying on 3Com’s communication equipment. Senators are reviewing the deal and saber rattling here.  Boy, those must be some old systems.  24/7 Wall St. is reviewing this one now for the Special Situation Investing Newsletter since at $4.86 this has only a 9% merger arb-spread for an at-risk deal on a company that management can’t fix on its own.

Cumulus Media (NASDAQ:CMLS) $11.75 management-led buyout…..
The $1.3 Billion MBO agreement announced on July 23, 2007 has been a quiet one.  When announced this was almost a 40% premium.  At $10.12 today, there is still a 16% merger-arb spread.  The Board of Directors approved the deal and recommended that shareholders vote for it, but the financing from Merrill Lynch Global Private Equity and Merrill Lynch Capital Corporation "could" be up for interpretation.  Jim Cramer actually called this a takeover candidate before the MBO was announced.  Cumulus is also a name 24/7 Wall St. has under review for its New Media Old Media subscriber newsletter.

Jon C. Ogg
November 1, 2007

Jon Ogg produces the subscriber-based Special Situation Investing Newsletter where we cover buyout candidates, restructurings, spin-offs, and more.  We recently issued our "Small Cap Internet Watch List" PART 1 of 2 that showed a list of smaller web related properties we think could be acquired under the right circumstances, and we even listed which predator companies could or would acquire them under the right circumstances.