Summary
Bristol-Myers announced a $90-billion deal for Celgene, roughly equal to its own valuation.
The deal is not really welcomed by investors, which shun mega-merger deals between pharma companies.
I like the sell-off as the deal could bring real synergies while valuations are quite low, making me a buyer of the drop in shares of Bristol-Myers.
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Bristol-Myers Squibb (BMY) started the year by announcing a mega deal as it is looking to combine its operations with that of Celgene (CELG) in a near $90-billion deal. The deal is not liked given the premium and incurred leverage, as the timing of Bristol-Myers looks pretty decent which combined with the negative reaction in the stock makes that I have initiated a position in the mid-$40s.
Deal Terms
Before looking into the strategic rationale behind the deal, let's first check out the deal terms. Bristol-Myers has agreed to buy Celgene in a deal which adds up to $74 billion in actual dollar terms, or $90 billion (if net debt is included) as that number even excludes the value of the contingent payments included in the deal.
Investors in Celgene stand to receive $50 per share in cash and a share of Bristol-Meyer's stock. That is not all, investors furthermore receive a contingency value right which receives a payment based on future regulatory milestones with a maximum value of $9 per CVR.
Based on the $52.43 share price for the unaffected stock of Bristol-Myers, the deal comes in at $102.43 for Celgene stock (excluding the CVR) as investors in Celgene combined will hold 31% of the shares of the combination.
