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Will Upjohn Get Picked Up?

Inside Wall Street


Most major pharmaceutical companies are still in a slump, but not Upjohn. Its shares have made a fast recovery--from 25 in mid-August to 32 in recent days. Yet problems have besieged the company, analysts say. Upjohn has few new products and some of its key drugs face patent expiration. Expenses have also been on the rise. "In sum, Upjohn faces prospects for stagnation over the next few years," asserts Michael Metz, an investment strategist at Oppenheimer.

So why has the stock jumped sharply recently--and why has Metz turned bullish on Upjohn? Whispers are that the company is up for grabs and is being considered for either a buyout or a merger by a large German pharmaceutical company. The talk is that Upjohn is now willing to discuss such a possibility.

Metz says the chances are high that Upjohn may consider such a move. The speculation about a deal started when William Parfet, a great-grandson of Upjohn's principal founder, resigned on Sept. 30 as vice-chairman. Metz notes that Parfet, who remains a board member, commented that Upjohn needs someone who can tackle the mounting challenges facing the company and that "it is open to almost any option." Metz and other Upjohn watchers interpret the comment to mean that the options Upjohn will consider include a strategic alliance or merger with another company. A spokesman says it is Upjohn's policy not to comment on merger speculation.

Metz concedes that he isn't a drug analyst. "But the logic of such a move in light of the consolidation in the industry is compelling," says Metz. "The sale of Upjohn makes sense as far as maximizing shareholder value is concerned," he adds.

Upjohn's current market cap is $5.9 billion. One buyout investor believes that in a deal, the company will be worth $9.5 billion, or $55 a share. GENE G. MARCIAL

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