Doubt grows on Celgene deal as Bristol-Myers holder balks

Bloomberg

Doubts are beginning to gather around the pharmaceutical industry’s biggest-ever takeover after Bristol-Myers Squibb Co.’s second-largest shareholder said that it doesn’t favour a $74 billion takeover of Celgene Corp.
Wellington Management Co., which manages about $1 trillion in assets, said in a news release that it “does not believe that the Celgene transaction is an attractive path” for broadening Bristol-Myers’s business. The firm holds 7.7 percent of Bristol-Myers shares, and said that it had sold some of what was until recently the biggest stake in the New York-based drugmaker.
Shares of Summit, New Jersey-based Celgene plunged 9.2 percent to $82.65 before US markets opened, well short of the roughly $101 in cash and stock that the offer is worth. Bristol-Myers gained 2.1 percent.
Wellington’s objection and the subsequent swings in the stocks are a sign that the companies could face a difficult path to close a deal that investors never seemed to love in the first place. Celgene shares haven’t traded at the offer price since the deal was announced. That consistent spread in the shares — likely to grow wider at the open — is a sign of investor doubts. It could also bring out other dissidents to join Wellington.

MORE TROUBLE?
“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,” said Geoff Meacham, an analyst with Barclays Plc. Meacham who still expects the deal to close, in part because of a lack of other suitors for the drugmakers.
Bristol-Myers said in a statement that it has had “numerous conversations and meetings with our stockholders across our ownership base, including Wellington” and that the deal “presents an important and unique opportunity to create sustainable value.” The company said it looked forward to its special shareholder meeting on April 12.
Representatives for Celgene couldn’t immediately be reached for comment. A Wellington spokesman wouldn’t comment beyond the company’s new release.

ACTIVIST PROPOSAL
The opposition to the deal comes just days after activist investor Starboard Value nominated five directors to the board of Bristol-Myers. Starboard hasn’t said what changes it may be seeking at the company. It has acquired 1 million shares in the drugmaker.
Wellington is one of the few supersized money managers that doesn’t own a substantial stake in both Bristol-Myers and Celgene. BlackRock Inc., Vanguard, Invesco Ltd. and State Street Corp. all have big holdings in each of the drugmakers. State Street declined to comment.
The proportion of investors who hold both companies and thus would benefit from the acquisition indicate that “it would still be an uphill battle for an activist to prevent the deal from closing,” Brian Abrahams, an analyst with RBC in London, said in a note to clients.
Wellington said that the terms of the transaction as laid out when the deal was announced ask shareholders of Bristol-Myers to shoulder too much risk. The investment firm also said that integrating the two companies could be a bigger lift than depicted by management and that “alternative paths to create value” could be more attractive.
Since the deal was announced there has been speculation that investors could step in to try to halt the deal or that another bidder for Bristol-Myers could emerge. Celgene has traded at a discount to the deal’s price in a reflection of that wariness in the market — as of the close of trading, Celgene was valued at roughly $64 billion.