“This proposed deal does not send a confident signal about Bristol’s independent growth prospects,” Arfaei said in a client note.
Increasing competition for main cancer treatments of both companies and clinical setbacks last year have resulted in investor concern over their future prospects.
Shares of Celgene have lost 38.6 per cent of its value in 2018, while those of Bristol-Meyers have shed 15.2 per cent.
Last year, Celgene boughtexperimental cancer drug developer Juno Therapeuticsfor $US9 billion, betting on its chimeric antigen receptor T-cell therapy, known as CAR-T, in a bid to reduce reliance on its mainstay drug, Revlimid.
Brad Loncar, chief executive officer of Loncar Investments, said both companies have made significant mistakes and poor investments in acquisitions and partnerships with smaller companies.
“Both of them were coming into this year kind of limping. Merging together makes the combined entity a lot stronger,” said Loncar, whose firm runs the Loncar Cancer Immunotherapy ETF.
Celgene shareholders will receive one Bristol-Myers Squibb share and $US50 in cash for each share held, or $US102.43 per share, a premium of 53.7 per cent to Celgene’s Wednesday close.
Bristol-Myers shares fell 9.5 per cent at $US47.10, while Celgene shares rose 33.5 per cent at $US88.95 in premarket trading.
Celgene shareholders will also receive one tradeable contingent value right for each share held, which will entitle them to receive a one-time potential payment of $US9 in cash upon regulatory approval of ozanimod and liso-cel by December 1, 2020 and bb2121 by March 31, 2021.
Bristol-Myers said it expects to speed up a share repurchase program of up to about $US5 billion, subject to the closing of the transaction, market conditions and board approval.
The companies expect to close the deal in the third quarter of 2019. The cash portion will be funded through a combination of cash on hand and debt financing.
The deal is expected to add more than 40 per cent to Bristol-Myers’s earnings on a standalone basis in the first full year after the deal closes.
Bristol-Myers has obtained fully committed debt financing from Morgan Stanley Senior Funding and MUFG Bank.
Morgan Stanley is the lead financial adviser to Bristol-Myers, and Evercore and Dyal are its financial advisers. Kirkland & Ellis is its legal counsel.
J.P. Morgan Securities is serving as lead financial adviser and Citi is the financial adviser to Celgene. Wachtell, Lipton, Rosen & Katz is its legal counsel.