Ending years of obscurity that unkind traders said was well deserved, American Cyanamid Co. has emerged as Wall Street's latest Cinderella, its stock skyrocketing more than 40 percent on the expectation that it will be acquired by a wealthy suitor.
Albert J. Costello, 58, an aggressive deal-spinner who has been the company's chairman and chief executive for only 18 months, has transformed the once-lackluster chemical manufacturer into a leaner, more profitable health care and agricultural products company by cutting costs and shedding underperforming divisions. And that has attracted attention.
Mr. Costello was quietly negotiating another deal, a promising swap of product lines with SmithKline Beecham, the big London-based drug company. But he may have spun too well, inadvertently putting his company up for grabs.
After a surprise $8.5 billion cash takeover offer from the American Home Products Corp., Mr. Costello said in a terse statement yesterday that he was seeking "strategic alternatives."
Securities analysts speculated yesterday that there might be a higher bid by a European drug and chemical giant such as Ciba-Geigy of Switzerland, Hoechst AG and Bayer AG of Germany or Zenaca, a British spinoff of Imperial Chemical Industries PLC.
American Cyanamid shares, which had been on a two-year slide, languishing in the mid-$40s only six months ago, soared to $93 after the American Home Products offer. The stock fell $2.25 yesterday, closing at $90.75 on the New York Stock Exchange.
Mr. Costello is a Fordham and New York University-trained chemist who has spent his adult life at American Cyanamid, which is based in Wayne, N.J. Analysts said he had wrested RTC control from a group they called "the Princeton boys club." His predecessor as chief executive, George J. Stella, a one-time football player at Princeton, retired early last year.
"Mr. Costello is a no-nonsense, decisive fellow who has actually done a few things instead of just studying them," said Samuel Isaly, an analyst with Mehta & Isaly Worldwide Drug Research. "A tougher crowd is in charge now."
Scott G. Kyreakakis, an analyst with Lehman Bros. said the Costello team knew how to run American Cyanamid's agricultural chemicals business profitably. It thrived with the help of favorable weather and a huge crop of soybeans that sent demand soaring for its weed-killers and pesticides.
American Cyanamid dates to 1907, when it produced fertilizer. It grew into a leading chemical company and spent most of the century acquiring a diverse collection of companies. It entered the health care field in 1930 by acquiring Lederle Laboratories, which has grown into a large maker of vaccines, and Davis & Geck, a suture supplier. It went on to acquire products such as Formica, Breck shampoo, Pine-Sol cleaner, Old Spice fragrances and Combat roach traps.
The company has since sold most of these lines. Last year, it spun off the last of its industrial chemical units as Cytec Industries and strengthened its foreign sales by buying an international agricultural chemicals business from Shell.
Applying cost-cutting tactics that he had learned in chemicals to the medical side of American Cyanamid, Mr. Costello cut 1,200 jobs on the way to a planned reduction of 3,500. Analysts said they included 300 drug salesmen and researchers working on "me-too" copies of drugs that had already saturated the market. American Cyanamid now employs about 26,550.
Kenneth R. Kulju, an analyst with UBS Securities, said American Cyanamid planned to concentrate on four core businesses: agricultural chemicals, anticancer drugs, generic copies of off-patent therapies like SmithKline's Tagamet ulcer treatment and over-the-counter products like Centrum vitamins.
The company announced a $400 million deal with Braun Melsungen AG of Germany that is expected to turn its unprofitable Davis & Geck unit into a small bonanza that should add 20 cents a share to earnings.
It fared less well with the purchase last year of 53.5 percent of the Immunex Corp., a biotechnology company, for $1.1 billion. Immunex's leading anticancer drug has had disappointing sales, Mr. Kulju said.
Mr. Costello was unavailable for interviews yesterday.
A BRAND-NAME BID
American Home Products Corp.'s $8.5 billion bid for American Cyanamid Co. could lead to the biggest takeover in years in health care, an industry roiled by government-led reform efforts and cost cutting. A look at the two companies:
American Home Products Corp.
Headquarters: Madison, N.J.
Businesses: Consumer health products, pharmaceuticals, foods
History: Founded in 1926, American Home grew during the Depression by acquiring more than 30 companies. The company has a low profile, but its brands include some well-known names: Jiffy Pop, Chef Boy-Ar-Dee, Crunch 'n Munch, Advil, Anacin and Preparation H.
1993 sales/profit: $8.3 billion/$1.47 billion
American Cyanamid Co.
Headquarters: Wayne, N.J.
Businesses: Pharmaceuticals, chemicals
History: Founded in 1907 by a civil engineer who bought the rights for making cyanamid, a component of fertilizer. Diversified into chemicals, medicine and consumer products.
1993 sales/profit: $4.28 billion/$1.2 billion loss, due to restructuring and spinoff of a chemical unit.