Bristol-Myers to Buy Celgene

Bristol-Myers Squibb is making a $74 billion bet — and investors aren’t pleased. The New York-based pharmaceutical giant on Thursday said it would acquire Celgene, a Summit, New Jersey-based cancer drug company, in a cash and stock deal valued at $74 billion. Under the agreement, Celgene shareholders will receive one Bristol-Myers Squibb share and $50 in cash for each Celgene share held, or $102.43 per share, a premium of 53.7 percent to Celgene’s Wednesday close.

After factoring in debt, the value of the deal balloons to about $95 billion — making it the largest health-care deal on record, according to data compiled by Refinitiv. Celgene investors were jubilant over the deal, and Bristol investors were less than enthused. Shares of Bristol slid 12 percent while shares of Celgene surged 25 percent shortly after it was announced. There’s a chance Bristol investor, who think the company is overpaying for Celgene, may not approve the acquisition, Mizuho Securities USA said after conducting a quick survey of about 100 institutional clients.

Bristol’s most important cancer immunotherapy and growth driver, Opdivo, has lost much of its luster as Merck & Co’s rival drug Keytruda seized dominance in advanced lung cancer, the most lucrative oncology market. Meanwhile, Celgene has endured high-profile clinical failures and U.S. exclusivity on its flagship multiple myeloma drug, Revlimid, will start being phased out in 2022.

At the very least, the companies face a hard sell to Bristol shareholders. The deal adds about $32 billion in fresh debt to Bristol’s balance sheet to fund the purchase while assuming $20 billion in Celgene’s debt, the companies said in an investor presentation. That’s a big jump from Bristol’s current outstanding long-term obligations of $7.3 billion, according to data compiled by FactSet.

The news sent the cost to insure Bristol’s bonds to their highest point since May 2010. As the price of long-term Bristol bonds fell, the associated credit default swap jumped 66 percent, bringing the cost to insure $1 million of the company’s debt against default to $23,000, according to Reuters.

Buying Celgene gives Bristol more cancer drugs at a time when its immuno-oncology portfolio struggles to keep up with rival Merck’s. And Celgene, if the deal closes, can blunt investor concerns about growth after what was seen as sloppy acquisitions last year. But the deal comes with skepticism about whether the price tag is worth the risks. And some view it as an act of survival.

 

Todd “Bubba” Horwitz