Bristol-Myers faces test as ISS weighs $74bn Celgene deal

Bristol-Myers Squibb Co’s plan to buy Celgene Corp will face its next hurdle in the coming days when advisers from Institutional Shareholder Services Inc issue their recommendation on how investors should vote on the deal.An endorsement from the proxy advisory firm would serve as a major clearing event and compress the spread between Celgene’s current share price and the implied value to between $4 and $7, according to nine deal specialists surveyed by Bloomberg. However, a negative recommendation from ISS or peer Glass Lewis & Co would probably stoke panic on Wall Street and widen it to $20 or more, they said.While the shares have been relatively volatile as the companies traded barbs with activists, the deal spread narrowed to $9.57 on Monday, down from a peak of $18.54, after Wellington Management followed Starboard Value’s move last month to oppose the transaction. The companies and a number of shareholders with notable positions met with members of the advisory firms last week to discuss pros and cons of the tie-up, which at a $74bn announced value in January would be the largest ever between two drug makers.“While we applaud arguments on both sides, our view is ISS will likely vote in favour of the transaction” and the deal will probably go through, Jefferies analyst Michael Yee wrote after Starboard and Bristol-Myers management published presentations last week. He stressed that there was “no smoking gun” in Starboard’s argument, which many on Wall Street viewed as necessary to persuade advisers to push back on the deal.Some analysts and investors have said Starboard Value needed to present a “Plan B” for Bristol-Myers. However, the fund’s chief executive, Jeff Smith, told CNBC last week that the drug maker doesn’t need to do anything and definitely doesn’t need to buy Celgene.In an open letter to shareholders on Monday, Bristol-Myers said it disagrees with recent suggestions that it aggressively cut research and development and reiterated the rationale behind the transaction, saying the decision to buy Celgene came after it evaluated a “full range of business development opportunities.”While Bristol-Myers bulls haven’t been as vocal as the critics, some analysts like BMO Capital Markets’ Alex Arfaei have praised the combination.“We believe Celgene’s core business and the merger’s cost synergies limit downside risk for BMY shareholders,” Arfaei, who rates the shares at outperform, wrote in a note to clients. He views the deal as “the right step at the right time” and doesn’t see much certainty for a potential buyer of Bristol-Myers, which some analysts have speculated about.The advisory firms are likely to give their final recommendation to investors sometime this week before Bristol-Myers shareholders vote on April 12.