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Bristol-Myers/Celgene: Win-Win Merger

Jan. 07, 2019 8:37 AM ETCelgene Corporation (CELG)BMY, IBB17 Comments


  • Bristol-Myers agreed to pay a 54% premium to acquire Celgene.
  • Celgene shareholders get an immediate price boost plus the long-term potential to participate in cheap BMY stock.
  • The deal provides a 40% EPS boost for Bristol-Myers and cost synergies of $2.5 billion.
  • Free cash flows should allow for the elimination of debt by peak Revlimid sales in 2022.
  • The conservative EPS target is $7 by 2020.

Rarely are mega mergers so appealing as the Bristol-Myers Squibb (BMY) bid to buy Celgene (NASDAQ:CELG). The latter biopharma had been beaten to such a pulp that the deal provides an immediate upside for suffering shareholders and the potential to participate in substantial earnings upside for the combined entity. The merger appears a win-win for both sides.

Celgene logoImage Source: Bristol-Myers/Celgene merger presentation

Merger Details

On January 3, Bristol-Myers announced the intent to pay $74 billion to purchase Celgene. The deal values Celgene at $102.43 a share plus a potential $9 CVR (contingent value right).

As detailed below, Celgene shareholders will get $50 in cash and one share of Bristol-Myers plus the CVR. The deal is expected to close by Q3.

Source: Bristol-Myers/Celgene merger presentation

An important aspect of the deal coming together is how beaten down these stocks have been over the last few years. Even with the iShares Biotech ETF (IBB) down about 6% in the period, both Bristol-Myers and Celgene have far underperformed with losses of nearly 30% in both cases. Noteworthy is that Celgene far underperformed prior to the merger announcement.

ChartBMY data by YCharts

The above chart explains the impetus of the deal when Celgene was only trading at about 6x '19 EPS estimates of $10.39. The risk of Revlimid coming off patent is further diluted due to the Bristol-Myers drugs and pipeline added to what Celgene already has in place.

Expansive Pipeline

The drug pipeline of the new entity is so deep and broad that an individual investor can't possibly analyze the portfolio. As the biopharma mentions, the company has 10 assets in Phase III trials with an additional 50 assets in Phase I/II studies.

Source: Bristol-Myers/Celgene merger presentation

This merger actually doesn't resolve some of the problems with Celgene where the feared sales declines

ChartBMY EPS Estimates for Current Fiscal Year data by YCharts

This article was written by

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.

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Analyst’s Disclosure: I am/we are long CELG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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