Bristol-Myers Squibb faces opposition from largest shareholder and activist investor over Celgene deal

Bristol-Myers Squibb's largest shareholder Wellington Management told the drugmaker that it is "not supportive" of the proposed $74-billion acquisition of Celgene, calling the deal too risky and expensive. Wellington Management, which owns around 8 percent of Bristol-Myers Squibb's stock, suggested that other options to create value for shareholders "could be more attractive."

Meanwhile, activist investor Starboard Value, which recently nominated five directors to sit on Bristol-Myers Squibb's board, said Thursday that the purchase of Celgene is "poorly conceived and ill-advised." Starboard added that it plans to vote all of its shares "against the proposals related to the proposed acquisition."

Starboard said "we believe the risks inherent in this acquisition paired with the long-term poor results at Bristol-Myers make it untenable to support such a transaction," adding "this view has been solidified by the numerous other large, long-term shareholders who appear to likewise believe this deal is not in the best interest of shareholders." Starboard also noted that it believes Bristol-Myers Squibb is "deeply undervalued"

Starboard indicated that after reviewing the proposed deal, it has concerns around Celgene's "massive patent cliff – among the largest in pharmaceutical industry history," with the loss of exclusivity on Revlimid alone requiring the company to replace over 60 percent of its total revenue in the next seven years. Starboard also called Celgene's drug pipeline "extremely risky," adding that the process and diligence timelines leading up to the announcement of the acquisition suggest the deal was "hastily construed and perhaps done to thwart potential strategic interest" in Bristol-Myers Squibb.

Other investors, including Bristol-Myers Squibb's fifth largest shareholder Dodge & Cox, are also said to be unsupportive of the proposed acquisition. Special meetings for shareholders of Bristol-Myers Squibb and Celgene to vote on the merger agreement are scheduled for April 12. Shares in Celgene fell as much as nearly 10 percent following Wellington Management's statement.

According to Bristol-Myers Squibb, it has had "numerous conversations and meetings" with investors, including Wellington Management, since announcing the Celgene deal. "We believe that we are acquiring Celgene at an attractive price, and that this transaction presents an important and unique opportunity to create sustainable value," Bristol-Myers Squibb said, adding that it continues "to expect that the transaction will close in the third quarter."

"Wellington's decision is likely to prompt other funds who remain unconvinced by the upside of the acquisition to identify themselves in the coming weeks," remarked Barclays analyst Geoff Meacham. However, the analyst said he still expects the deal to close, in part because of a lack of other suitors for the drugmakers.

The transaction, which has been approved by the boards of both companies, has a termination fee of $2.2 billion. "It's difficult to predict whether or not there is enough pushback for that to happen," commented Edward Jones & Co. analyst Ashtyn Evans, with Andy Hsieh of William Blair noting "even with the combined voting power for both Wellington and Starboard Value, we believe there continues to be a high hurdle for opposition to reach majority."

Meanwhile, Baird Research analysts said "we continue to think the deal makes sense for Bristol-Myers, and ultimately will go through, despite this new risk, but have to acknowledge that Wellington has a much more commanding position than anyone else who has taken a stance against the deal so far."

For related analysis, see ViewPoints: The hunted goes hunting – for liberty and a late-stage pipeline, and ViewPoints: Bristol-Myers Squibb, Celgene deal passes first big hurdle.

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