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BEHIND THE NEWS: Deal-making buzz follows Cornelius to Bristol-Myers

September 10, 2007

Jim Cornelius had such success selling Guidant Corp. last year that analysts can't stop speculating when he'll pull off a mega-merger at B r i s t o l - M y e r s Squibb, the firm he now leads.

How about pairing it, for instance, with Eli Lilly and Co., where Cornelius used to be chief financial officer?

"We're about the same size. Both Sidney Taurel and John Lechleiter are former colleagues and good friends. You can never say never," Cornelius, 63, told IBJ.

If you want to fan the merger speculation, you can come up with a lot more reasons for the pairing than that Cornelius, a longtime Zionsville resident, feels kinship with Taurel, Lilly's CEO, and Lechleiter, the company's president.

At the top of the list: New York-based Bristol-Myers must be looking covetously at Prasugrel, Eli Lilly and Co.'s experimental blood thinner. If the Indianapolis company successfully brings Prasugrel to market, it could take a big chunk of sales from Bristol-Myers' topselling drug, Plavix, which rang up $6 billion in revenue last year.

But don't get too worked up about the merger talk. As Lilly spokesman Phil Belt points out, "increased size just for the sake of being bigger has not historically produced shareholder value in our industry. While we continually re-evaluate our position, we believe remaining independent is the right path for Lilly, and that that is the path that will continue to deliver growth."

Then, there's the fact that Bristol-Myers' outlook has strengthened markedly since Cornelius took the helm a year ago, eliminating any urgency for a deal. In part, that's because the company prevailed in a high-stakes patentinfringement trial over Plavix. Also helping: Federal prosecutors opted not to bring criminal indictments stemming from an accounting scandal under Cornelius' predecessor, Peter Dolan.

Becoming CEO of another Fortune 500 company was the last thing on Cornelius' to-do list when Dolan got the boot last fall. After Massachusetts-based Boston Scientific Corp. bought Guidant for $27 billion in April 2006, Cornelius and his wife, Kathy, an artist, planned to spend more time at their oceanfront home in Maui.

But in the moment of crisis surrounding Dolan's ouster, the board persuaded Cornelius, a Bristol-Myers board member since 2005, to step in as interim CEO. After the search for a permanent successor dragged on, Cornelius gave in to the board's urging that he take the post. This spring, he signed a two-year contract that will keep him in the job through May 2009.

"This is actually the third time I flunked retirement," Cornelius quipped.

Indeed, Cornelius put in 28 years at Lilly before retiring from the drugmaker in 1994 to help lead Guidant, its medical device spinoff, which staged an initial public offering that year. It was a sweet run. The $80-a-share sale to Boston Scientific left investors in the IPO with a return of more than 2,000 percent.

More than anything, it's the Guidant climax that is fueling talk of a Bristol-Myers merger. To strike that deal, Guidant Chairman Cornelius helped work two rival suitors-Boston Scientific and New Jersey-based Johnson & Johnson-into a bidding frenzy, even as the Indianapolis company rolled out waves of product-recall and productdefect announcements.

"Guidant's board ... played the two bidders like a virtuoso," Fortune magazine wrote in an exhaustive analysis of the deal a year ago. "Guidant ... secured an astounding price for its assets."

Cornelius gives an awshucks response.

"I don't deserve the accolades I get as a dealmaker," he said. "It was a very complex process that ended with a great price."

In fact, deal-making has been just a small part of his business career. It's true that at Lilly, Cornelius helped make the acquisitions that launched the company's medical-device subsidiary. But there and at Guidant, his biggest contributions were in operations. That's where the companies created the most shareholder wealth.

"For those of us [at Bristol-Myers] who want to remain independent, the best defense is a good offense," Cornelius said, suggesting that the company controls its own fate if it prospers. Certainly, investors nowadays have little reason to howl for a deal. Since Cornelius came aboard, the company's stock has appreciated 23 percent.

Yet in interviews and in conference calls with analysts, Cornelius leaves open the possibility of an eventual merger, a stance that partly explains the stock's climb.

That puts Cornelius in a bit of a spot. As A.G. Edwards analyst Joseph Tooley said in a recent report, "we continue to believe that [the company's] lofty valuation is not fully supported by the stock's underlying fundamentals."

In short, to keep shareholders happy, he again may need to demonstrate his deal-making magic.
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