The first big merger of the year has arrived, in the form of a deal for Bristol-Myers Squibb (NYSE: BMY) to swallow Celgene (NASDAQ: CELG). The two are of a similar size — both massive, and both S&P 100 components, so the combination will have some serious weight. But as so often happens when such M&A events are unveiled, the buyer’s share price took a dive.
However, as MarketFoolery host Chris Hill and MFAM Funds’ Bill Barker discuss in this segment of the podcast, that’s not just because analysts are worried that the $74 billion price tag it put on the biotechnology giant was too high.
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A full transcript follows the video.
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This video was recorded on Jan. 3, 2019.
Chris Hill: The deal of the day is Celgene and Bristol-Myers. Bristol-Myers, one of the big pharma companies, buying Celgene, one of the big biotech companies, to the tune of $74 billion. Celgene shareholders — I believe you are one?
Bill Barker: Yes, I am. Full disclosure.
Hill: Here’s what you’re going to get in this deal. You’re going to get one share of Bristol-Myers stock. You’re also going to get $50 in cash for every share of Celgene. How are you feeling?
Barker: I guess I feel better than I did before the day it started, in terms of Celgene, which has had a rough go of it. Bristol-Myers is selling off quite a bit. I and other shareholders will be getting that share of Bristol-Myers, if we want to keep it, as well as the $50 in cash if the deal goes through. I don’t have any reason to believe that it won’t. But time will tell. Some things do fall apart.
Hill: It’s expected to close in the third quarter.
Barker: Yeah, and we’re just at the beginning of the first quarter. There’s plenty of time for events to supersede.
Hill: As they say in sports, there’s plenty of time to blow this lead.
Barker: Well, it’s not that much of a lead. Bristol-Myers is down quite a bit. I guess the question for shareholders is, if the deal goes through, do you want to hold on to this share of Bristol-Myers that you’re going to get in replacement for your share of Celgene? The market doesn’t like what Bristol-Myers has done seemingly, which is understandable from the traditional metric, which is an acquiring company’s shares go down and the acquired company’s shares go up. That’s what’s happening. For the last couple of years, you saw that pattern broken a lot, where the acquirer was going up no matter what. Everybody liked everything in the stock market. But we’re seeing, first of all, a day in which there’s a certain amount of pessimism in the market. I think that Bristol-Myers is pretty interesting at the price that it’s going for right now.
Hill: Bristol-Myers, to put some numbers around it, the stock is down about 12% today on this news. Celgene up 25%. I was talking with Shannon Jones, one of the hosts of our Industry Focus podcast. She hosts the Wednesday episode, which is about Healthcare. If you’re not already listening to that podcast, definitely check it out. Next Wednesday, Shannon’s definitely going to be talking about this deal, and probably talking about it in a way with far greater intelligence than you and I are talking about it.
Barker: Oh, easy. That’s damning with faint praise.
Hill: [laughs] So, I was chatting with her before. And I said, “Is what we’re seeing with Bristol-Myers the traditional,” as you indicated, “they’re the acquiring company, maybe some people think they spent a little too much money and that’s why the stock is down?” She said she thought that was part of it, but also, Bristol-Myers had been languishing on its own, and there were some who thought that Pfizer might be making a bid to buy Bristol-Myers. Some of what we’re probably seeing with Bristol-Myers selling off today is the “you paid too much,” and some of it is, “I was hoping you guys were going to get bought.”
Barker: Yeah. “You paid too much,” “we hate stocks today,” and “now Pfizer isn’t going to overpay for you, so we’re out of here.”
Hill: Some people would say those three factors make up a perfect storm.
Barker: Yeah, idiots are the ones who would say that. Speaking of idiotic notions, do you think this is the opportunity for Bristol-Myers to get rid of the Squibb in its name?
Hill: Yeah.
Barker: The whole Harry Potter thing has undermined the attractiveness of that.
Hill: Yes. In the Harry Potter universe, a squib is a person born of magical parents, but they do not have magical abilities. Do I have that right?
Barker: You do have that right.
Hill: OK. So, yes, I think you’re right, in part because some people on Twitter today were already starting to throw out polls in terms of like, “Bristol-Myers Squibb is buying Celgene. What should the new name be? Should it be BristolGene? Should it be CelSquibb?” CelSquibb, I don’t think that was getting many votes.
Barker: No. Bristol-Meyers-Celgene… I don’t know. I don’t care. [laughs] I’ve got my share of Bristol-Myers to deal with now.
Hill: We’re joking about this, but make no mistake, there are actual conversations taking place at Bristol-Myers Squibb headquarters in New Jersey today if they haven’t been going on already about, “What is the name going to be? What is the branding going to look like?”
Barker: Oh, yeah. Money is being spent. And if they get it wrong, you will be there to kick them in the teeth for a long time.
Hill: I and others. [laughs] If we do anything on this podcast, it’s take shots at people who really blow it when it comes to branding.
Barker: Yeah. You’ve won a few of those battles.
Hill: We had a couple of victories. Certainly with Tronc. The people who came up with Tronc saw the error of their ways and went back to Tribune Media. Good for them.
Barker: Oath, is that still around?
Hill: Nope. They also saw the error of their ways. Even more quickly than the Tronc people did. They went with Verizon Media.
Barker: What’s No. 1 on your hit list now?
Hill: I don’t know. We’ll see what these people come up with.
Bill Barker is an employee of MFAM Funds, a separate, sister company of The Motley Fool, LLC. The views of Bill Barker and MFAM Funds are not the views of The Motley Fool, LLC, and should not be taken as such.
Bill Barker has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Celgene and Twitter. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
