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BMS’ largest investor comes out against Celgene deal—and it’s music to activists’ ears

February 28, 2019
Life sciences

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Activist investor Starboard Value is officially rallying the troops against Bristol-Myers Squibb’s $74 billion Celgene deal. But while it’ll have more support than some analysts expected, the question is whether it’ll be enough to scuttle the merger.

Thursday, Starboard CEO Jeffrey Smith penned a letter to Bristol’s shareholders labeling the transaction “poorly conceived and ill-advised.” It intends to vote its shares—which number 1.63 billion, though the hedge fund is seeking more—against the deal, and it wants to see other shareholders do the same. It’ll be filing proxy materials “in the coming days” to solicit no-votes from BMS investors, Smith said.

Starboard picked up its stake early this year after the deal was announced, BMS confirmed last week, but until now, it hasn’t been forthcoming about its intentions. But the timing of its reveal is likely no coincidence; just Wednesday, Wellington Management—which owns about 8% of Bristol’s shares and ranked as its largest institutional shareholder as of earlier this week—came out publicly against the “risky” buyout.

Starboard’s view on the deal “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,” Smith noted.

And Wellington is definitely one one of them. It “does not believe that the Celgene transaction is an attractive path towards” a business that “secures differentiated science and broadens the future revenue base,” it said in a press release. The agreement terms offer “Bristol shares to Celgene shareholders at a price well below implied asset value,” the fund said, and successfully executing the transaction could be harder to pull off than company execs have outlined.

Bristol, for its part, disagrees. It’s had “numerous conversations and meetings” with shareholders—including Wellington—since announcing the deal, and “we believe that we are acquiring Celgene at an attractive price,” it said in a statement, adding that “this transaction presents an important and unique opportunity to create sustainable value.”

Celgene investors weren’t happy with the Wellington news, and they sent shares crashing by more than 8% Wednesday. Bristol’s stock, on the other hand, drifted upward.

“The news is a surprise to us as we believe many investors have been warming up to the deal,” Credit Suisse analyst Vamil Divan wrote in a note to clients.

But while “we believe it is possible at least one other long-term top 5 holder may disagree with the transaction too,” RBC Capital Markets’ Michael Yee wrote in his own investor note, he—as many of his fellow analysts do—still expects to see the deal go through. “We think the vast majority of the acquirer holder base that would not like the deal already voted by selling their shares earlier leaving investors who are mostly supportive of the deal,” he wrote.

Meanwhile, Starboard has been clear about one other thing: It wants board seats. It’s nominated five new directors, including CEO Smith, and investors will vote on that group at an as-yet-unscheduled meeting. Thing is, that meeting will take place after BMS investors vote on the Celgene deal in April, so Starboard will have to rally sufficient support against the deal if it wants to see them installed.

The “probability of a third-party buyer for Bristol-Myers Squibb” before the April vote is “very low,” BMO Capital Markets analysts wrote recently, adding that “we do not believe a potential activist can change that.” Barclays analysts agreed Wednesday, pointing to a “lack of realistic, potential alternatives that could collectively provide a similar level of upside.”

By Carly Helfand

Source: Fierce Pharma

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