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September 9, 2010
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For Immediate Release
Chicago, IL – September 9, 2010 – Zacks.com Analyst Blog features: Bristol-Myers Squibb Co. (BMY), ZymoGenetics Inc. (ZGEN), Family Dollar Stores Inc. (FDO), Wal-Mart Stores Inc. (WMT) and Dollar General Corporation (DG ).
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Here are highlights from Wednesday’s Analyst Blog:
Bristol-Myers to Acquire ZymoGenetics
Bristol-Myers Squibb Co. (BMY) announced its decision to acquire ZymoGenetics Inc. (ZGEN) for $9.75 per share in cash. The offer price represents a premium of approximately 84% over ZymoGenetics’ closing price of $5.30 on Sep 7, 2010. Bristol-Myers aims to bolster its pipeline, especially for hepatitis C, through this acquisition. The merger has been approved by the boards of both companies.
The deal, which is expected to hurt Bristol-Myers’ 2010 and 2011 earnings by 3 cents and 7 cents respectively, has an aggregate purchase price of about $885 million or nearly $735 million excluding ZymoGenetics' cash on hand. The deal is expected to be financed by Bristol-Myers’ existing cash balance.
Under the terms of the agreement, Bristol-Myers will initiate a cash tender offer on or around Sep 9, to buy all the outstanding shares of ZymoGenetics at $9.75 per share. The closure of the offer is subject to the customary terms and conditions which include tendering of approximately 56% of shares outstanding as of Aug 31, 2010. The offer is expected to close within a month of its commencement. Currently, stockholders owning about 37 % of ZymoGenetics have agreed to support the deal and tender their shares in the offer.
The merger will add ZymoGenetics' bleeding control product, Recothrom, to Bristol-Myers’ portfolio. Furthermore, the deal boosts the drug giant’s pipeline significantly. Most significantly, the acquisition, on materializing, would provide Bristol-Myers full ownership of pegylated-interferon lambda (formerly known as IL-29), which is currently being co-developed by the two companies for treating patients suffering from hepatitis C virus (HCV).
PEG-Interferon lambda is a novel type III interferon being developed for treating HCV patients. The native human protein interferon lambda is generated by the immune system in response to viral infection.
Family Dollar Carries Momentum
Family Dollar Stores Inc. (FDO), the operator of self-service retail discount store chains, carries its growth momentum in fourth-quarter 2010. Following an increase of 8.4% in third-quarter 2010, the retailer stated that sales had jumped 8% to $1,957 million in the quarter under review from $1,811 million posted in the prior-year quarter.
Comparable-stores sales remain healthy, reflecting improved traffic counts and an increase in average transaction value. Comps climbed 6.1% during the quarter. The operator of 6,785 stores, Family Dollar, hinted that sales were strongest in the consumables category.
Matthews, North Carolina based company, Family Dollar, highlighted that sales for fiscal 2010 came in at $7,867 million, up 6.3% from the year-ago quarter. Comparable-stores sales grew 4.8% for the year.
Despite a sluggish economic environment, Family Dollar’s strategic initiatives to improve the merchandising, marketing, and store operations have resulted in sustained growth in both the top and bottom lines.
The effective price management, cost containment, tighter inventory control, private label offering, expanded operating hours and recent merchandise initiatives should inevitably drive sales and margin trends. Moreover, in order to enhance its market share, Family Dollar intends to focus on both consumable and discretionary categories.
Family Dollar has been actively managing its cash flows, returning much of its free cash to shareholders through share repurchases and dividends. The company has also been making prudent investments relating to store infrastructure; store openings, expansions and relocations; along with improvement of distribution centers to drive revenue growth.
However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn, affect the company’s growth and profitability.
Moreover, Family Dollar operates in the highly competitive discount retail merchandise sector, and faces stiff competition from Wal-Mart Stores Inc. (WMT) and Dollar General Corporation (DG ), which will likely continue to weigh on its results. Given the pros and cons, we currently prefer a Neutral rating on the stock. Moreover, our Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, correlates with our long-term view.
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