Ignoring Loeb, Amgen Says No, But Not Never To Breakup

Sorry, Mr. Loeb, it looks like it’s only going to be $219 per share for Amgen (AMGN). The biotech leader hosted a business update session yesterday and CEO Robert Bradway wasted no time in addressing the proverbial 800lb gorilla in the room. Within his opening remarks, Mr. Bradway noted that although they understood the pressure to break up, the company is a single business unit and there are benefits to that. Basically, he said that they have ‘not seen a way through that we think unlock significant value for our shareholders.’ He made sure to say that this wouldn’t necessarily always be the case, but that right now he was ‘not convinced that there’s a way through that adds value for all of our shareholders.’

For those who don’t remember, Mr. Loeb’s Third Point made waves last week by calling for a breakup of $100+b market cap biotech giant. Mr. Loeb’s quarterly letter argued that the company and shareholders would both benefit by a split into a growth/high R&D company and a mature, slower growing company. He estimated a breakup could launch Amgen’s shares as high as $249, but he did admit that the company’s restructuring plans would also be positive for shareholders. That seemed to prove true yesterday. Although the company won’t breakup, it wasn’t all bad news as Amgen did unveil a cornucopia of ‘value enhancing’ activity including:

1. Cutting an additional 1,100 jobs, bringing its total expected layoffs to ~20% of its workforce. Yup, The Reformed Broker is right about this one.
2. Repurchase of up to $2b in shares
3. A 30% dividend hike

The moves were well received and Amgen’s shares popped over 6% on the news. The company’s plans are quite aggressive and it hopes to increase operating margin by a whopping 15% by 2018. Quite a remarkable feat! According to Sanford Bernstein analyst Geoffrey Poges, the original breakup idea man, ‘the operating margin improvement is real and that’s probably the most positive thing people will take away.’ Lost amidst the ‘value enhancing’ hoopla, the company is also very excited about many of the products in its pipeline. Although it plans on launching a whole bunch of new products in the near term, I guess expectations aren’t that high given its recent lackluster history?.

Ultimately, as expected, the company is sticking with its own turnaround plan for now, although it likely ‘enhanced’ the returns to shareholders due to the activist pressure. If the company can execute on its plans, I don’t think we will be seeing a breakup anytime soon. Of course, if performance starts to slip, Mr. Loeb might come knocking again. With shares up close to 20% since his position leaked, he is probably quite content with his latest investment right now.

Disclosure: Author holds no position in any stock mentioned.