Mark Neuling | CNBC
Giovanni Caforio, CEO, Bristol-Meyers Squibb.
Bristol-Myers Squibb has been meeting with shareholders in Boston and New York over the last two weeks to try to salvage its $74 billion purchase of cancer drugmaker Celgene, the biggest acquisition announced so far this year.
The deal, announced in January, was hard sell to Bristol shareholders from the start. The acquisition adds about $32 billion in fresh debt to Bristol's balance sheet while assuming $20 billion in Celgene's debt, the companies said at the time. After factoring in debt, the acquisition was the largest health-care deal on record, according to data compiled by Refinitiv.
Now, hedge funds Wellington Management and Starboard Value say the deal doesn't sit well with them. Bristol has sent executives to New York to meet with institutional investors several times over the last two weeks and met with investors in Boston on Wednesday and Thursday, according to a person who briefed on the meetings.
Bristol-Myers declined to comment.
Wellington — which is Bristol's largest institutional holder with 135.3 million shares, or 8 percent, of its common stock — said Wednesday the Celgene deal asks Bristol shareholders to accept too much risk. Starboard,which holds about 1 million shares, cited similar concerns in an open letter to shareholders Thursday, saying the Celgene deal was "poorly conceived and ill-advised."
Brian Skorney, senior research analyst at Robert W. Baird & Co, said it's unusual for an investment firm like Wellington, which has some gravitas with shareholders, to come out against such a deal.
"Wellington in of itself is huge in the bio-pharmaceutical space. They're a major voice in terms of long-term shareholders," Skorney told CNBC. "Now the question is does [Wellington's opposition] bring more shareholders away who would otherwise vote with Bristol?"
Buying Celgene was seen as giving Bristol more cancer drugs at a time when its immuno-oncology portfolio struggles to keep up with rival Merck's. Bristol's blockbuster Opdivo, which boosts the immune system to attack cancer, has fallen behind its leading competitor, Merck's Keytruda.
Brad Loncar, CEO of Loncar Investments, said there was a feeling among investors that Bristol's management and stock performance aren't strong enough to execute a deal as big as Celgene. Bristol's shares have slid 21 percent over the last 12 months. Shares of Merck, which he said has managed to "outclass" Bristol, have soared almost 50 percent in the same period.
"I talked to a lot of people and I'm not aware of any Bristol shareholders who were excited and even for the deal. Literally, not one," Loncar said.
Shares of Bristol rose by about 1.4 percent Thursday, following the opposition from Wellington and Starboard, while Celgene shares fell by about 8.7 percent.
On Thursday, following Starboard's announced opposition, Bristol said that it "welcomes the opinions of all of its stockholders and will review Starboard's letter and respond in due course."
"The Bristol-Myers Squibb Board and management team are confident that our combination with Celgene will create a premier biopharma company and deliver substantial benefits to our stockholders," they added.
