Is Bristol-Myers Squibb going to buy Celgene or not? Most such deals go through, but the exceptions are big ones (such as Pfizer’s bid for AstraZeneca). The uncertainty has come in because of yesterday’s announcement from Wellington management, the largest institutional holder of BMY (8% of common shares) that they oppose the deal. You can tell that the markets took this seriously – Celgene’s stock went down 8% yesterday, while Bristol-Myers Squibb stock went up.
Why stand in the way? Wellington says that they don’t like the idea of the merger, nor the price at which it’s taking place. It comes down to “We’re fine with you guys doing deals, but not this one”:
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. Wellington’s conclusion is based upon three tenets: 1) the transaction asks BMY shareholders to accept too much risk and the terms offer BMY shares to CELG shareholders at a price well below implied asset value; 2) execution success could be more difficult to achieve than depicted by Company management; and 3) alternative paths to create value for BMY shareholders could be more attractive.
That’s not a vote of confidence, for sure. The shareholder’s meeting is coming up in April, and between now and then management has to keep holders of large blocks of shares from agreeing with Wellington. That will have some straightforward features – assuring everyone that they will too be able to execute, realize value, and all those other PowerPoint words, for example. And it will have some awkward features, too, because arguing against the above means that you will, in part, have to tell everyone that either no, they aren’t giving Celgene shareholders too sweet an offer, or (alternatively) that Wellington is overvaluing BMY shares. I don’t see the latter as an appealing line of attack; I would guess that Bristol-Myers Squibb would rather talk up all the great stuff that they’ll be getting by buying Celgene instead.
And there’s always the outside chance that someone else will be convinced by those arguments and jump into the bidding as well. I don’t see that happening, but hey, Celgene is 8% cheaper today than it was yesterday, so it is arguably on sale. One complication, though, is that no small amount of Celgene’s market cap is due to the company’s willingness to play all kinds of hardball when raising prices on its own drugs and limiting their generic competition. They’ve been good at those things, although how much pride one should take in those accomplishments is another question. Their own dealmaking, though, has been another thing entirely. But “someone has to step in before they squander even more money” is not a compelling M&A argument, either. Worth watching.
Update: another investment firm, Starboard Value, has also come out against the deal.