Summary
Bristol-Myers' $74bn deal for Celgene should be a net positive.
Deal creates the #1 oncology franchise.
Management is guiding to some lofty post-deal, synergy targets.
We think BMY is worth a look following the recent de-rating.
Bristol-Myers Squibb Co's (BMY) plans to acquire Celgene Corporation (CELG) is game-changing. The total deal is worth around $74 billion and will be the biggest deal in the sector since Roche acquired Genetech back in 2009. BMY plans to pay US$ 50 cash plus one share of BMY for every share of CELG, for a combined US$ 102.43 per share. As surprising as the announcement was, the deal looks like it could be net positive for BMY.
Plus, there is also a contingent value right on the table. Existing CELG shareholders will receive US$ 9.00 per share from BMY if the Food and Drug Administration (FDA) approves three of CELG’s pipeline drugs. Overall, the deal should prove fairly lucrative to CELG shareholders, as evidenced by the price moving close to the combined deal price.
The case for BMY is not as clear cut. The market reacted negatively to the news, but the situation is not as straightforward as the price action suggests. It is CELG’s product pipeline, which potentially makes this a good deal for BMY. The products are strategically aligned with BMY’s therapeutic focus and offer much-needed diversification to the product line. It is for this reason that, assuming the deal goes to completion, BMY stock is worth a look at current prices.
