The planned acquisition of Celgene (CELG) by rival drugmaker Bristol-Myers Squibb (BMY) got a new lease of life this week after proxy advisory firm Institutional Shareholder Services recommended Bristol-Myers shareholders to support it. The $74 billion deal has been in limbo following objection from a section of investors who own stake in Bristol-Myers.
Celgene’s stock gained about 8% in early trading Friday as shareholders welcomed the intervention of ISS in the proposed merger. The stock rally began in the pre-market session and continued after regular trading started.
In a letter sent to the shareholders, ISS termed the valuation ‘reasonable’ and opined that the transaction has a strong strategic rationale. The recommendation is in stark contrast to the negative stance adopted by activist investor Starboard Value and Bristol-Myers stakeholder Wellington Management earlier, saying the deal is ill-advised and poorly conceived.
According to Starboard, Celgene’s drug pipeline is very risky and it faces headwinds to revenue growth from the expiration of key patents in the next few years. Wellington Management believes the acquisition of Celgene will not help Bristol-Myers in achieving its business goals and enhancing the top-line performance in the future.
Bristol-Myers shareholders are scheduled to vote on the closely-watched buyout on Tuesday. Meanwhile, advisory service Glass Lewis has also taken a stance supporting the deal.
As per an agreement reached by the companies when the acquisition was conceived in early January, Celgene shareholders will get one Bristol-Myers share and $50 in cash for each Celgene share. In addition, they will be eligible for a special rights issue, to be paid off once the combined entity meets certain financial milestones.
For the December-quarter, Celgene reported a 16% growth in revenues to about $4 billion, driving adjusted earnings higher by 20%. Benefitting from a decline in research and development costs, the company turned to a net profit during the quarter, on a reported basis.
After slipping to a five-year low in the final weeks of 2018, Celgene shares have gained more than 50%, once again crossing the $90-mark. The stock rose around 40% since the beginning of the year.
Meanwhile, Bristol-Myers traded down 1% in the early trading hours on Friday, continuing the downturn that started mid-March. Currently, the stock is down 25% from the levels seen a year ago.