Bristol-Myers hits a bump on road to Celgene takeover
- The largest institutional holder of Bristol-Myers Squibb doesn't support the company's planned acquisition of Celgene, creating a potential roadblock to one of the industry's largest deals ever.
- Wellington Management, which holds a nearly 8% stake in Bristol-Myers, said Wednesday the Celgene takeover is too risky and more difficult to pull off than the buyer has made it seem. The investment management firm also took issue with the deal terms — specifically, the price of Bristol-Myers shares being offered to Celgene shareholders, which Wellington said is "well below implied asset value."
- Bristol-Myers CEO Giovanni Caforio said in a letter to employees his company was "disappointed" in Wellington's position, but noted discussions with shareholders about the mega-deal will continue. Still, Wellington's announcement appeared to unnerve Celgene investors, sending the biotech's stock down more than 7% by noon Thursday. And adding to the potential headwinds, Starboard Value — another, albeit much smaller, Bristol-Myers investor — on Thursday came out with a 16-page report arguing why shareholders should vote down the deal.
A tie-up between Bristol-Myers and Celgene would create one of the most formidable cancer drug portfolios in the industry, armed with four blockbuster therapies for solid tumors or blood cancers. Should the deal go through, Bristol-Myers estimates the combined company would yield around $40 billion in revenue and $10 billion to $15 billion in net income this year.
Yet the path to a completed deal looks rockier now that Wellington isn't on board.
"How Bristol responds to Wellington's decision and whether other shareholders publicly voice their opinion on the deal in the coming days will likely determine the fate of the acquisition," Credit Suisse analyst Vamil Divan wrote in a Feb. 27 investor note.
Wall Street analysts acknowledged on Wednesday that Wellington's position could unnerve other Bristol-Myers shareholders, or provide a key catalyst to an activist campaign aimed at thwarting the Celgene purchase. The guesses were timely, as Starboard Value sent a letter to shareholders Thursday calling for them to vote no on the "poorly conceived and ill-advised" deal.
Starboard holds less than 0.1% of Bristol-Myers' common stock, but that small stake hasn't prevented the hedge fund from trying to shake things up. It recently nominated five directors to the drugmaker's board — a move that was made clearer in the letter to shareholders, which lamented the company's stock performance over the last decade.
"These results are not reflective of a management team and Board of Directors that has earned the right, in our view, to execute on a 'bet the company' acquisition," wrote Starboard's Managing Member, Jeffrey Smith.
In Starboard's view, it would be fair to conclude the Celgene deal is a "defensive" maneuver from a company averse to getting acquired itself. Starboard contends there are better ways for Bristol-Myers to gain value than the Celgene acquisition, with one being a potential sale of the company.
"A casual observer might reasonably suspect that Bristol-Myers initiated merger discussions with Celgene in order to avoid shareholder pressure for the company to conduct a sale process," Smith wrote.
"While we are not solely advocating for a sale of the company, we strongly believe that management and the Board should be open to any option that maximizes value for shareholders," he added.
Wellington maintains a similar view.
"While Wellington agrees that Bristol-Myers should be active in business development that secures differentiated science and broadens the future revenue base, Wellington does not believe that the Celgene transaction is an attractive path towards accomplishing this goal," the investment firm said in its Feb. 27 statement.
Wellington holds nearly 126 million Bristol-Myer shares, although a form filed Wednesday with the Securities and Exchange Commission showed that it holds voting power for only about 28 million of those. Still, its platform will give it plenty of clout when shareholders vote to approve or reject the Celgene buyout during a special meeting on April 12.
Despite the opposition, some analysts noted it will be an uphill battle for investors trying to topple the Celgene deal and Bristol-Myers said it's moving forward without Wellington's support.
"We believe that with continued discussions, shareholders will recognize the enhanced value this transaction would create and continue to believe strongly in the merits of the deal," Bristol Myers' Caforio said in a Feb. 27 statement.
"I know that the noise and speculation in the media may be distracting," he added. "I encourage you to focus on delivering our business priorities for 2019 and the important work you are doing for patients."
The pharma also issued a statement rebutting Starboard's argument, reiterating its case for the deal.
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