How well did the Myth Buster do in 2014? The Myth Buster pointed out a number of interesting acquisitions and mergers in the biotech, healthcare and pharmaceutical industries (sometimes the borderline is not clear) in the October issue. The year 2014 ended with a flurry of mergers and acquisitions. Actavis (ACT) acquired Forest Laboratories ($FQX) and is acquiring Allergan (AGN) , the Botox maker. Merck (MRK) is acquiring Sigma-Aldrich (SIAL) for about $17 billion and is acquiring Cubist (CBST) . Novartis (NVS) is in a merger with GlaxoSmithKline (GSK) .
All of these moves carry strategic significance. Actavis is vying for leadership in specialty pharmaceuticals. Merck is looking to broaden its offerings with new products and a strong laboratory testing equipment maker. Novartis seeks over-the-counter leadership. So is GlaxoSmith Kline, which may also welcome an opportunity to clean its image.
The Next Blockbuster?
The actions of these companies offer a glimpse into how these powerful industries are moving forward. Blockbusters such as Lipitor (Pfizer (PFE) ), Humira (Abbott Laboratories (ABT) ) and Plavix (Bristol-Myers Squibb (BMY) ) are rare. As an alternative, these companies are consolidating large chunks of the market as we saw with Gilead Sciences (GILD) , Amgen (AMGN) and Roche (RHHBY) in the October piece. Immediately prior to year end, Gilead is nearly double its 52-week low point; Amgen is up about 50% from its low point.
The Myth Buster also looked at Microsoft’s (MSFT) addition of a mobile specialist to its board. Among the cash-laden giants: Apple (AAPL) , Google (GOOG) and Microsoft, the king of operating systems has been quiet. Late in 2014, Microsoft decided to give away a comprehensive mobile edition of Office. According to The New York Times, the free software for iPads, iPhones and Android tablets allows mobile users to do most computer tasks. This represents at least a defensive strategic move against Apple that made its iWork suiteof productivity applications free a year ago for new buyers of Macs and Apple mobile devices. Google has also nibbled around the area by offering a free suite of Web apps that competes with Office. The sheer size and acquisition aggressiveness of Apple and Google must be on the Microsoft dashboard. We shall see what 2015 brings – whether Microsoft will be content to counterpunch or to borrow a phrase from the pharmaceutical industry – to create a blockbuster.
The Bank Teller Wore a Mask
Does anyone need further proof that business sometimes resembles reality TV, the subject of several entries for 2014? The Myth Buster entered a bank branch recently. The teller was wearing a mask, but said nothing about her appearance. (There had been a fire in the building.) Equally bizarre is Joseph Tsai, co-founder of Alibaba (BABA) , deciding to invest $100 million in a SAC Capital hedge fund knockoff called Pinyin Capital Management.
The Myth Buster also looked at reshoring – the trend of bringing manufacturing back to the US for better quality and ironically to save money. Four trends will propel this movement in 2015:
- Low Energy prices
- Rising Labor costs in China
- Expanding Automation, lowering production cost
- US Manufacturing shifting to open-shop states
The United Auto Workers (UAW) losing the union election in Tennessee may prove one of the most momentous business events in recent years. Union membership stands at about 11% of the workforce and continues to decline in the private sector.
The Myth Buster also provided a grim assessment of Career Education Corporation (CECO). The stock lies in a slough of despond, standing at $6.27 in late December. They lost $48 million in the third quarter following a massive slide in May. In two years (2011 – 2013), Retained Earnings fell $307 million and Property, Plant and Equipment dropped $168 million.
In a Reality TV twist, according to Yahoo Finance, Blum Capital is CEC’s largest holder. According to its own website, Blum specializes in Leveraged Buyouts. Imagine a conversation at one of the CEC campuses:
Applicant: “If I sign up for this culinary program that you say will get me a job as Jay-Z’s chef, will I be able to graduate?”
CEC Recruiter: “Well, our biggest shareholder specializes in Leveraged Buyouts.”
We all need to look sharply at the ebb and flow of events! Next month, the Myth Buster will look at another insightful and thought-provoking myth.
Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.
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