Just what are they buying?

Just what are they buying?

One has to wonder just what Panasonic/KKR is buying now that Bayer is proceeding with a reorganization of their diabetes device unit. Here is what we have learned regarding the reorg- 40 positions are being eliminated which is over half the unit whose head count had shrunk to 73. Sales territories are being reduced to just 24 with the diabetes team, what’s left of it anyway, working with other departments. It seems the company is moving closer to a pharma sales model as it eliminating physician sales calls and focusing more on managed care.

Now we hate to bring up the obvious here but with these rather drastic cuts just what is Panasonic/KKR buying, assuming of course the sale is still on. Although management may be foolish enough to believe these changes will have an immediate positive impact, they won’t. This is what makes this reorg so crazy, assuming again, that the sale is still on. We can understand downsizing but such wholesales changes moving to a new model just doesn’t make any sense.

If Panasonic/KKR is really buying the unit they should send Bayer a nice thank you note for doing all the heavy lifting in terms of job elimination and picking up any costs related to the reorg.  Yet one still has to wonder why Bayer would go to all this trouble and expense if the sale was imminent. Why not let Panasonic/KKR after paying a billion or so decide what to do with this albatross. The more we look at this the less it makes sense and that’s saying something given this is the wacky world of diabetes.

Right now Bayer is fourth in a four horse race and is trailing the leaders by a wide margin. No disrespect to the good people at Bayer, those left anyway, but when your trailing Abbott (NYSE:ABT) and Roche in the BGM market that’s not a good sign. This begs the question again assuming Panasonic/KKR really is going to buy this unit what if anything they can do differently. It also makes one wonder how Panasonic/KKR is justifying the rumored price tag for the unit, which even at the low end is a head scratcher.

With cost already cut to the bone just what else can they do? As we noted yesterday they cannot raise prices and it will equally difficult to increase sales, a task made even more difficult now that fewer sales people are calling on fewer accounts. We have no problem eliminating physician sales calls as physicians don’t impact sales. Nor do we disagree with an increased focus on managed care but these changes still won’t yield anything different. Unless Bayer- Panasonic/KKR is willing to fight for formulary position, which means lower prices, higher rebates or both, they don’t have a prayer. Yet even if they attempted to do this LifeScan, would not go quietly into the night and would fight back.

So we ask again just what is Panasonic/KKR buying? BGM is no longer the cash cow it was, yes they can still make money but not the kind of money that justifies a billion dollar plus price tag. Honestly Diabetic Investor would just love to sit in on Panasonic/KKR board meeting while they are discussing this purchase. We’d love to sit with the due diligence team and have them outline the rational for this deal. And we promise we will be on our best behavior nor will we burst out laughing at any point no matter what they say.

Listen Diabetic Investor has heard some crazy stuff over the past week so we doubt there is anything that Panasonic/KKR could say that would shock or surprise us, not after this week.  We just want to understand just what they are buying here other one huge headache.