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Hungry For A Bite Of Warner Lambert


Inside Wall Street

HUNGRY FOR A BITE OF WARNER-LAMBERT

After quite a roller-coaster ride this year, Warner-Lambert (WLA) stock is headed steadily uphill again--thanks to renewed takeover talk. Whispers are that a big hedge fund is accumulating shares of this maker of prescription and over-the-counter drugs.

The fund's manager intends to press Warner-Lambert management to take action soon to realize the stock's intrinsic worth, says a strategist at a New York investment bank. The stakeholder is expected to propose either breakup or sale of the company. The scuttlebutt is that Warner-Lambert will try to fend off such moves by selling noncore units, including its confectionery, gum, and mints operations.

"Warner-Lambert is such an undervalued company with such a valuable franchise that I would be surprised if it isn't bought out by yearend," says an analyst at one New York investment bank that holds a 4.9% stake.

The breakup value of the company's three major divisions, which produced total revenues of $6.4 billion last year, is 140 a share, he estimates--compared with its current stock price of 84.

Bristol-Myers Squibb, American Home Products, and Glaxo are rumored to have expressed interest--in either the whole of Warner-Lambert or parts of it. This analyst believes all three have made informal offers. A Warner-Lambert spokesman said the company was looking to dispose of "nonproductive" assets but wouldn't comment on buyout rumors. Bristol-Myers and American Home Products declined to comment.

Although Warner-Lambert's new-product pipeline shows improvement, investors are finding the stock appealing on its breakup value alone. Here's how one respected analyst figures the values in Warner-Lambert:

Pharmaceuticals, which include Accupril and Dilzem antihypertensives and Dilantin and Neurontin epilepsy treatments, accounted for 32% of sales and 42% of earnings last year. The analyst puts the price of this group at $5.9 billion. Health-care products, including Listerine, Rolaids, and Benadryl cold medication, generated 46% of sales and 42% of profits and are valued at $9.6 billion. Confectionery, gum, and mints--among them Dentyne, Trident, Clorets, and Certs--accounted for 22% of sales and 16% of earnings and are worth $4.5 billion.

Total: $20 billion, or $140 a share, after deducting debt of about $900 million. "There are 20 drugmakers worldwide desperately seeking valuable properties. Warner-Lambert is a standout among [the targets]," says Oppenheimer strategist Mike Metz.BY GENE G. MARCIAL


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