Can BMS rebels scuttle its Celgene buy? Analysts do the math—and so far, the votes don't add up

Bristol-Myers Squibb
Can Wellington sway undecided voters to turn down BMS' acquisition of Celgene? It won't be easy, analysts say. (Bristol-Myers Squibb)

Bristol-Myers Squibb shareholders panicked on Wednesday when its largest institutional shareholder, Wellington Management, came out against its $74 billion acquisition of Celgene—and activist hedge fund Starboard Value immediately followed suit. Now, BMS is reportedly stepping up its efforts to calm investors' nerves, meeting with institutional shareholders in New York and Boston this week, according to CNBC sources.

But could Wellington and Starboard really halt the deal, which comes up for an investor vote on April 12?

The answer is no—at least according to a slate of Wall Street analysts who crunched the numbers after Wellington announced its opposition. Sure, the influential investor’s negative opinion could persuade some on-the-fence voters, but Wellington is still facing an uphill battle, they said.

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“Wellington, even combined with similarly positioned funds, lacks the votes to sway the deal outcome,” wrote analysts at Atlantic Equities in a Thursday investor note. They did the math in Wellington’s SEC filing and found that even though the firm said it has “investment discretion” over nearly 8% of BMS’ outstanding shares, it has shared voting power over only 1.7% of them.

RELATED: BMS’ largest investor condemns Celgene deal—and it's music to activists’ ears

Dodge & Cox reportedly opposes the deal, too, but it owns just 2.6% of shares. And Starboard Value's voting power is even more limited, the Atlantic analysts said.

Then there’s another problem that could seriously hamper Wellington’s ability to sway undecided voters: “We see Wellington's grounds for opposition as raising no specific or credible reasons why the deal should not go through.”

In a statement announcing its opposition on Wednesday, Wellington said it believed the deal requires BMS shareholders to take on too much risk and Celgene shareholders to accept BMS shares “at a price well below implied asset value.” Wellington also contended that making the merger a success will be more difficult than BMS’ executives have suggested it will be.

A spokesperson for BMS did not comment to FiercePharma on reports that it's stepping up meetings with investors. In a statement issued late Thursday, Bristol-Myers said its Celgene merger "is consistent with our strategy and is the natural next step" in the company's evolution.

Reiterating its initial justification for the deal, BMS touted six potential drug launches—including five from Celgene—that together represent more than $15 billion in potential sales. The combo will also "enhance our leadership positions across our portfolio, including in oncology, immunology and inflammation and cardiovascular," the company said.

Counting potential votes

It’s not just the rebel investors' voting power that matters here, some analysts have pointed out. It’s also the outsized influence of investors who own shares in both companies. Credit Suisse analysts did that math and found that, as of the end of December, there was a roughly 58% overlap in the shareholder base of the two companies.

That could “shore up support for the deal, as these shareholders would benefit from the takeout of Celgene,” they wrote in a note to investors on Friday.

RELATED: Bristol-Myers confirms activist Starboard has its shares. And it wants board seats, too

Wolfe Research analyst Tim Anderson surveyed more than 100 Bristol-Myers and Celgene shareholders and predicted in an investor note this week that the majority of them would favor the deal. Only “aggressive shareholder activism” could derail the merger, he said—and that would most likely have to come in the form of a bidder swooping in to take out Bristol-Myers before the Celgene deal wraps up.

That scenario has come up many times since BMS announced the Celgene buy earlier this year. Bristol-Myers has been under pressure from investors unhappy that its immuno-oncology blockbuster, PD-1 inhibitor Opdivo, has been losing ground to Merck & Co.’s Keytruda. And the hits just keep coming for Opdivo. Earlier this month, for example, Merck released data from a key kidney cancer trial showing that a combo of Keytruda and Pfizer’s Inlyta cut the risk of death nearly in half.

Anderson said his investor poll placed the odds of another pharma company picking off BMS at no more than 20%. “This is where we place odds as well,” Anderson said, adding that acquiring BMS would only make sense for companies that “missed the PD-1 boat” and would be satisfied being the number-two player in that market. The only company he named that might qualify, however, was Amgen.

Barclays analysts predict that other funds will step forward to oppose the BMS-Celgene combo. But ultimately, they say, the majority of shareholders will support it on April 12. “Beyond the lack of realistic, potential alternatives that could collectively provide a similar level of upside, we continue to see strong rationale for the acquisition,” Barclays said in a note to investors.

That said, Wellington shouldn’t be counted out, other analysts warn. “Wellington in and of itself is huge in the bio-pharmaceutical space. They’re a major voice in terms of long-term shareholders,” said Robert W. Baird analyst Brian Skorney in an interview with CNBC. “Now the question is, does [Wellington’s opposition] bring more shareholders away who would otherwise vote with Bristol?”

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