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Got milk?

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Bought some Mead Johnson Nutrition (NYSE: MJN) shares last week. I wrote about it couple months ago before its IPO. This is one of my defensive plays in this downturn. It appears to me people will not stop making babies in the recession, from my very limited observation. More importantly, after China milk powder incident last year, Mead Johnson’s Enfamil is likely to get more market share in China. Yes, China economy growth slowed quite a bit due to the slowdown of export. Yes, people are losing jobs overthere. Yes, Chinese people are cutting back on discretionary spending. But one thing won’t get cut is baby’s formula. Same argument could be made for India, and Brazil…

Mead Johnson’s parent Bristol Meyers Squibb stock (NYSE: BMY) dropped quite a bit last Friday (yesterday). I am doing EMC-VMW type of analysis here (EMC is majority owner of VMW even after VMW IPO).

My question:
How many MJN shares does each BMY share has?
BMY Shares outstanding: 1.98B (Yahoo Finance)

MJN: 30 m shares offering (about 15%, IPOHome)
204.50M (Yahoo Finance), matches 424B4 Final Prospectus, quote 424B4:

Currently, we are a wholly-owned subsidiary of BMS and all of our outstanding shares of common stock are owned by BMS. Following our separation and upon completion of this offering, we will be a stand-alone public company and BMS will own 58.5% of the outstanding shares of our Class A common stock, or 55.1% if the underwriters exercise their over-allotment option in full, and 100% of our outstanding Class B common stock, giving it 85.0% of the shares of our outstanding common stock and 97.8% of the combined voting power of our outstanding common stock, or 83.1% and 97.5%, respectively, if the underwriters exercise their over-allotment option in full. Any shares of Class A common stock issued pursuant to the underwriters’ over-allotment option will increase the total number of shares outstanding after this offering.

*So in summary 204.5 M * 85% / 1.98 B = 0.0878
$27.35 (MJN share price) * 0.0878 = $2.40 (each BMY share has approximately $2.40 value of MJN share).

Appendix:
Bristol Meyers Squibb BMY 5 Dividend Stocks for this Market (SmartMoney mag)
Corporate executives almost always say their stock is a good value. But Bristol-Myers Squibb (BMY: 20.17, -1.16, -5.43%) CEO James Cornelius backs it up with hard cash. He bought $2.3 million worth of shares on the open market last year‹the first big purchase by a Bristol insider in more than five years.

But that’s hardly the only reason analysts like this drugmaker, which has nearly $20 billion in annual sales. The company makes one of the world’s top-selling drugs, Plavix, a blood-thinning agent. Along with its partners, it recently introduced new drugs for rheumatoid arthritis, hepatitis B, HIV/AIDS and cancer. It has more than $8 billion in cash, which it can use to make acquisitions or license drugs from other firms. And it expects to increase earnings 10-15 percent this year.

The big challenge for Bristol is what to do about the “patent cliff” it will face in 2012, when three of its biggest sellers, including Plavix, face competition from generic drugs. Those three drugs account for more than a third of sales, and analysts worry that the pipeline, while promising, doesn’t include enough potential hits to fill the hole. One key will be whether Bristol’s restructuring plan pays off. The firm has been shedding slow-growth businesses and cutting costs. It plans to spin off part of its Mead Johnson nutrition unit to raise more cash. Cornelius has outlined a strategy of buying a “string of pearls”‹small but profitable biotech drugs that could make up for patent losses. He’s also signaled that he’ll be disciplined with the cash; he dropped out of the running for ImClone last year after Eli Lilly trumped his $5.4 billion offer for the biotech firm.

Perhaps most compelling is the stock’s value compared with other big drug companies. The shares trade at a price/earnings multiple of about 12 times estimated 2009 earnings of $3.8 billion‹a 15 percent premium to the drug industry average. Yet Bristol is increasing profits at more than double the sector’s rate. And it offers one of the highest dividend yields. Says S&P equities analyst Herman Saftlas, “If they hit enough singles and doubles, they’ll offset the lack of home runs.

1 reply on “Got milk?”

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