Summary
- There is a pending 16 percent spread between the current price of Celgene and the take-out price.
- Investors are concerned about the viability of the deal.
- Celgene fits perfectly with Bristol Myers from a business perspective, the price is right, and regulatory hurdles are minimal.
2019 began with a healthy dose of M&A deals, but I believe the most interesting deal of the year is between Bristol Myers (BMY) and Celgene (CELG). This deal will be finalized before 2019 comes to an end, and still offers you a healthy 16 percent spread for your money. In this article I will discuss why this spread will close in 2019 and why investors are overly pessimistic about the deal.
Image taken from News.BMS.Com
Bristol Myers is a global pharmaceutical company with a leading position in the global market for oncology and hematology. On January 3rd, the company announced that it would purchase Celgene in a deal valued at $89 billion. Shareholders of Celgene will receive $50 in cash and one share of Bristol Myers, the buyer. The deal is on track to be finalized by the third quarter of 2019.
The Rationale Behind The Deal
The most important parameter you should check before investing in an arbitrage play is the rational of the deal. If the deal does not make sense from a business perspective, no spread is high enough to compensate for the risk. In that sense, the combination between Bristol Myers and Celgene makes perfect sense. You see, Bristol Myers has suffered some significant setbacks during 2018 in its attempts to develop the highly lucrative cocktail of Opdivo + Yervoy for treating various types of cancer. Specifically, its leading rival, Merck (MRK) was able to demonstrate cure robustness with its product Keynote – 042 for lung cancer.
