By Micah Maidenberg 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 1, 2019).

Activist investor Starboard Value LP detailed its opposition to Bristol-Myers Squibb Co.'s proposed acquisition of Celgene Corp. and said it plans to organize other shareholders to oppose the $74 billion deal.

In a letter addressed to Bristol-Myers shareholders and released Thursday, Starboard criticized Bristol management and its board for what it said were years of weak performance, saying the drugmaker hasn't "earned the right, in our view, to execute on a 'bet the company' acquisition."

"We believe the risks inherent in this acquisition paired with the long-term poor results at Bristol-Myers make it untenable to support such a transaction," the letter said.

Bristol said it would review Starboard's letter and respond in due course. In a written statement, the company defended its deal for Celgene, saying the combined company would have a broad portfolio of products and a robust pipeline, generating significant financial benefits for shareholders.

"The Bristol-Myers Squibb Board and management team are confident that our combination with Celgene Corporation will create a premier biopharma company and deliver substantial benefits to our stockholders," the company said. A spokeswoman for Celgene didn't respond to a request for comment.

Shares of Bristol-Myers were up 2.5% on Thursday afternoon, while Celgene's stock was off 7.5%.

Starboard alleged in the letter that Celgene will lose significant patent protections in the coming years, creating risks for the combined company. The so-called patent cliff for Celgene's multiple-myeloma drug Revlimid, a top seller, will force Celgene to replace more than 60% of its total sales in the next seven years, Starboard said.

The investor also characterized Celgene's drug pipeline as extremely risky, and one that will require significant research-and-development funding.

Starboard also described the takeover as "hastily construed and perhaps done to thwart potential strategic interest" in Bristol.

Bristol-Myers said last week in a filing that Starboard had acquired about one million shares in Bristol -- a fraction of the drugmaker's outstanding stock -- but indicated it could buy more. The Wall Street Journal previously reported that other investors including Dodge & Cox are also unhappy with the proposed deal.

Wellington Management Co., which owns about 8% of Bristol but only controls the vote on less than one-quarter of those shares, said Wednesday the proposed acquisition asks shareholders to take on too much risk and undervalues Bristol's stock.

Bristol-Myers shareholders are set to vote on the deal April 12, and a majority of the shares voted need to approve the deal for it to pass.

Bristol also said last week that Starboard nominated five potential directors to its board. Those directors would be voted on at the company's annual meeting expected to be later this year.

The dissatisfaction that significant Bristol-Myers shareholders have voiced has caught some pharmaceutical-industry observers by surprise.

"We may have miscalculated the passivity of large-cap investors when it comes to this deal," Baird analyst Brian Skorney said in a note to clients, referring to Wellington's opposition.

Starboard also said in the letter it believes Bristol-Myers could move ahead as a more profitable, lower-risk stand-alone company, or seek to sell itself.

Write to Micah Maidenberg at micah.maidenberg@wsj.com

 

(END) Dow Jones Newswires

March 01, 2019 02:47 ET (07:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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