This morning Celgene (CELG 83.97, +17.33, +26.01%) and Bristol-Myers (BMY 45.55, -6.47, -12.44%) announced the two parties had entered into a merger agreement whereby Bristol-Myers would acquire Celgene in a cash and stock deal with an equity value of about $74 bln.
Per the deal terms, Celgene shareholders will receive 1.0 Bristol-Myers Squibb share and $50.00 in cash for each share of Celgene. Celgene shareholders will also receive one tradeable Contingent Value Right (CVR) for each share of Celgene, which will entitle the holder to receive a payment for the achievement of future regulatory milestones.
Based on the closing price of Bristol-Myers stock of $52.43 on January 2, 2019, the cash and stock consideration to be received by Celgene shareholders at closing is valued at $102.43 per Celgene share and one CVR. When completed, Bristol-Myers shareholders are expected to own approximately 69% of the company, and Celgene shareholders are expected to own about 31%.
Strategic rationale for the deal holds that the internal rate of return is expected to be well in excess of Celgene’s and Bristol-Myers’ cost of capital. Therefore, the combination is expected to be more than 40% accretive to Bristol-Myers’ earnings per share (EPS) on a standalone basis in the first full year following close of the transaction.
Further, Bristol-Myers expects to realize run-rate cost synergies of around $2.5 bln by 2022. Bristol-Myers is confident it will achieve efficiencies across the organization while maintaining a strong, core commitment to innovation and delivering the value of the portfolio.
Bristol-Myers also expects to execute an accelerated share repurchase program of up to approximately $5 bln, subject to the closing of the transaction, market conditions and Board approval. Additionally, following the close of the transaction, Dr. Giovanni Caforio will continue to serve as Chairman of the Board and Chief Executive Officer of the company. Two members from Celgene’s Board will be added to the Board of Directors of Bristol-Myers. The combined company will continue to have a strong presence throughout New Jersey.
Bristol-Myers and Celgene expect to complete the transaction in the third quarter of 2019, as the Boards of Directors of both companies have approved the combination.
Following the announcement Bristol-Myers also announced full-year 2019 EPS guidance which came in mostly in-line with expectations, excluding the impact of the Celgene deal. Specifically, Bristol-Myers sees 2019 non-GAAP EPS between $4.10-4.20, including the combined dilution of $0.09 from the UPSA divestiture and U.S. Pension liabilities transactions. Bristol-Myers will provide full line-item guidance for when the company reports its results for the fourth quarter 2018 on January 24, 2019.
The impact of today’s deal has trickled down to oncology peers, which mostly trade lower. Specific peers lower on Thursday include BGNE -11.61%, NKTR -5.87%, BLUE -1.90%, LOXO -3.16%, BPMC -2.77%, XLRN -5.67%, SPPI -1.63%, CLVS -9.08%, and PBYI -4.20%.