Starboard outlines opposition to Bristol-Myers/Celgene tie-up

|About: Bristol-Myers Squibb C... (BMY)|By:, SA News Editor

Bristol-Myers Squibb (NYSE:BMY) investor Starboard Value has just released a new presentation supporting its opposition to the company's planned $74B takeover of Celgene (NASDAQ:CELG). Key points:

BMY is paying ~$30B for CELG's pipeline, about twice as much as BMY has implied since it is overstating the value (~$55B) of CELG's marketed products.

Top-seller Revlimid, representing 63% of CELG's sales, faces generic competition in 2026. Overall, CELG is facing a substantial patent cliff over the next seven years.

Its expectation of 10 approved blockbusters ($1B+ sales/year), on average, in eight years is overly bullish considering that CELG has commercialized three blockbusters in 15 years.

Assuming CELG's near-term launched products can generate $10.8B in sales by 2028, another five blockbusters will be needed to reach BMY's 2028 revenue base case.

Assuming the best-case scenario, the transaction will only generate a 3% internal rate of return (IRR) over BMY's weighted average cost of capital (WACC). The more likely scenarios will destroy shareholder value.

The rationale for the deal is misguided, being defensive in nature so BMY will not become an acquisition target itself.

BMY alone will have a better chance to create value, sticking to its "String of Pearls" strategy to build its pipeline.

The cost to exit the transaction is relatively minimal. If shareholders nix the deal, it will owe CELG only $40M. The $2.2B termination fee only applies if BMY discloses a third-party acquisition proposal prior to the shareholder vote and enters into another agreement or closes a different transaction within the following year.

CELG is down a fraction premarket.

Update: BMY has just released its presentation on the merits of the deal.

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