Why will the Bristol-Myers-Squibb deal probably not happen?

Text size

The deal between
Bristol-Myers Squibb

(BMY) and
Celgene

(CELG) has been the subject of many titles this week and, whatever happens, there will probably be many people dissatisfied with the result.

The history of return. The two companies started the year 2019 with great success, announcing January 3 that they were going to merge for a $ 74 billion deal. (Celgene is no stranger to the "New Year's New You" philosophy: last January, she announced the acquisition of Juno Therapeutics.) With few exceptions, there was little news about or the other company, the markets having taken it as a sign of the current trend of Big Pharma mergers.

All this changed in February, when an activist investor Starboard value stated that he had taken a stake in Bristol-Myers and that rumors had then been voiced as to the rise of opposition to the agreement. In a rare movement, Wellington ManagementThe largest institutional shareholder in Bristol-Myers has publicly spoken out against the merger earlier this week, and Starboard has presented its own arguments against it. This left investors to race to see if the takeover was in big trouble.

What's up. After having assimilated the recent developments, the analysts are thinking about what to do with the news.
Swiss credit
S
Vamil Divan notes that, although it is not easy to obtain precise figures, there is considerable overlap between the Bristol-Myers and Celgene shareholders' bases, which favors the transaction.

On the other hand,
UBS
S
Navin Jacob is worried about what a new venture will actually look like, because according to its estimates, "would find itself [a] double-digit profits reduce the compound annual growth rate between 2025 and 2030. "

Look to the front. Jacob writes that from here, Bristol has to face three different paths, all of which represent a difficult choice.

First, discard the cards and use the funding for other smaller acquisitions over the next few years. Second, continue as planned, selling the new company as a "long-term asset that minimizes risk" of patent cliffs. Third, go ahead as planned, but provide more clarity and detail on its pipeline than "the street does not see yet", so as to allay investors' fears. "Having said that, given the early nature of some of Celgene's assets, we have a hard time fully trusting that perspective until we learn more," Jacob writes.

In Barron's In our opinion, the agreement will probably still be concluded, even if it is not a sure thing. Divan notes that most investors are in agreement. Wellington and other opponents of the deal could hope that a dissolution could open the door to a bidder for Bristol-Myers, as
Amgen

(AMGN), but he sees this as unlikely. His discussions with the shareholders showed that they were largely "in agreement [recent] developments complicate and probably reduce the probability of closing the transaction, but most are still waiting for the transaction to complete as planned. "

Write to Teresa Rivas at [email protected]