Summary
- CELG appears to be about to become a BMY asset, based on end-of-week news flow.
- The surge in CELG shares and drop in BMY below $48 lead me to favor BMY here, and I have traded accordingly.
- The rationale for this view is presented, with early top-down thoughts on valuation and opportunities for a post-merger BMY.
Very good news for the merger
Bristol-Myers Squibb, or "BMS" (BMY) has agreed to acquire Celgene (CELG). Each share of CELG will be paid with $50 cash, one share of BMS stock and a contingent value right, or CVR, with a $9 cash payment if three CELG drugs are approved timely.
My initial reaction in January was that CELG was attractive as an arbitrage play, and I scaled into a full position and then some with an average price around $88. As I studied the deal more, based on fuller disclosure of the thinking at BMY, I began liking it more. My position evolved to think that as the large cap stock market (SPY) began rallying but BMY began dropping again below $50, BMY began looking like a cheap value stock which offered several ways for the buyer of its shares to achieve alpha. Initially, one of the reasons to own BMY was that even though I did not think there would be limited takeover interest in it, and in any case I expected the deal would go through, owning BMY was a dividend-paying hedge against the deal failing and BMY suddenly being viewed as 'in play.'
I'd like to summarize Friday's sequence of events indicating the deal will pass. The first major news was summarized Friday by Seeking Alpha:
- CELG is up 6% premarket on light volume in response to proxy advisor ISS supporting its announced merger with BMY (-1% premarket).
- Shareholders at both companies will vote on the tie-up on April 12.
Insitutional Shareholder Service is quite influential. Their support was viewed by "Mr. Market" as critical to a smooth vote of BMY shareholders for the deal. In addition, as Business Insider reports, another influencer came out Friday for the deal (my emphasis):
