BMS defends Celgene buyout ahead of shareholder vote

Bristol-Myers Squibb is looking to convince investors that its $74bn takeover of Celgene is a sound move, ahead of a key shareholder vote on the deal.

The deal was first announced in January, and many commentators praised BMS for the canny timing of the deal, which allowed it to purchase Celgene at a relatively low price.

However since then, major shareholders have raised objections to the deal.

Activist fund Starboard Value said earlier this month that it intends to nominate five board members at the company’s shareholder meeting on 12 April and has also purchased roughly a million shares (equivalent to 0.06% of outstanding stock).

Meanwhile Wellington Management, a much bigger shareholder, which controls around 7.7% of BMS shares, has also expressed its opposition to the deal.

It says the deal undervalues BMS, is risky to execute, and ignores alternative options to create value for BMS’ shareholders that could be more attractive.

Since then, BMS has gone into overdrive to try to win over its doubters, and today published its second new investor presentation with projections about how the deal could help it grow revenues and profits.

The new presentation maintains that the Celgene buyout was by far the best strategic deal available for value creation, and superior to continuing a ‘string of pearls’ approach to further mid-sized purchases, share buybacks or other transformative deals.

CEO Giovanni Caforio and the BMS board are unanimous - but have a nailbiting vote ahead

Compared with other recent big M&A deals, BMS says the Celgene deal represents a 9.9x NTM p/e ration (next 12 months price to earnings ratio), a superior figure to the Takeda-Shire merger’s 12.8x ratio and a median from nine deals over the last 15 years of 11.4x.

However Starboard Value has today produced its own updated presentation deck, arguing that previous mega-mergers have not gone well, and warning that BMS could destroy value if the deal goes ahead.

Another high profile BMS investor, Brad Loncar’s Loncar Cancer Immunotherapy ETF, also made its opposition to the deal clear earlier this month. Among the reasons it cites against the acquisition, it claims BMS’ executive team is not suited to manage a larger organisation, that it will result in cuts to R&D spending, and that there is more risk in Celgene’s pipeline than is being currently presented.

The row will come to a head on 12 March at the shareholder meeting, and many analysts still believe that BMS will be able to command a majority vote to see the deal through.