American Home Products Corp.'s $9.7 billion acquisition of American Cyanamid Co. creates one of the nation's largest prescription drug companies and raises a question: What will become of American Home Products' food brands?
Some suggest the marketer will sell off its disparate and mature food brands, including Chef Boyardee prepared pasta, Jiffy Pop popcorn and Pam cooking spray. Indeed, some indicate American Home Products may sell its food units, in part to help finance the American Cyanamid buy.
American Home Products' officials could not be reached for comment on its food business' future.
Analysts also expect the company to peddle American Cyanamid's chemical products division, although American Home Products denies it has such plans.
Said one industry executive; "American Home has always been viewed as a drug company that played in detergents and food .*.*. But the thing is, organic market share growth is so difficult today [that] at the right price [a sale] becomes attractive."
"A total focus on drugs is clearly a possibility," said Nomi Ghez, an analyst at Goldman, Sachs & Co., New York.
There would be plenty on which to focus. The merger-announced after two weeks of intense and at times hostile negotiations-creates a company with annual revenues of $12.6 billion, with 73.8% of that in drugs and other healthcare products. In the drug industry, size is meaningful as healthcare reform cuts profits and reshapes marketing. A larger company boosts revenues, improves American Home Products' chances of winning high-volume managed care contracts, and builds on the streamlining already under way at both.
In May, American Home Products announced it would cut about 4% of its 51,000 jobs by next year. American Cyanamid has been in a restructuring effort intended to reduce its 27,000-person workforce by about 9% over three years. Analysts expect the merger to bring more layoffs.
"We have been impressed with American Cyanamid's progress in carrying out its strategic program," said John R. Stafford, chairman, president and CEO of American Home Products. "The combination of our companies will result in a stronger company, better situated to compete in the rapidly evolving healthcare marketplace."
American Home Products' consumer drug brands-including Advil analgesic, Robitussin cold medicine, Preparation H hemorrhoid treatment and Chapstick lip balm-will be well matched by American Cyanamid's leading vitamin and supplement brands Centrum and Protegra and its Fibercon laxative.
No decisions have been made on the future of the companies' marketing accounts. Young & Rubicam, New York, is American Home Products' lead agency; Carrafiello-Diehl & Associates, Irvington, N.Y., handles American Cyanamid.
American Home Products' greater consumer brand portfolio means a much larger ad budget, with $281 million spent in 1993, vs. American Cyanamid, which spent $17 million.
But American Home Products' marketing is seen as a bit stodgy while Cyanamid's brands have a more contemporary image.