An investor in Celgene Corp. on Monday sued over Bristol-Myers Squibb Co.’s planned $74 billion acquisition of Celgene, saying that the deal undervalued the company and its cancer therapies that are in the development pipeline.
The stockholder class-action lawsuit, filed by Hollywood, Florida-based law firm Mager Paruas in Delaware Chancery Court, claimed that Bristol-Myers was “taking advantage” of a temporary decline in Celgene’s stock price to offer investors an estimated $102 in total value for each share they own in Celgene. Bristol-Myers’ headquarters are in New York City.
According to the complaint, Summit-based Celgene and its directors held the deal out as a premium to its stockholders, despite allegedly rejecting a previous offer from Bristol-Myers with an aggregate value of $110 per share.
“Celgene common stock is trading at depressed levels as the company is at the bottom of a business cycle that is expected to improve,” the complaint said. “A fair price cannot be based on a purported ‘premium’ over a depressed market price and the $102 price is unfair to stockholders.”
Celgene and Bristol-Myers announced the deal Jan. 3, saying the tie-up would create a “leading focused specialty biopharma company” for treating cancer, inflammatory, immunologic and cardiovascular diseases.
“Combining with Bristol-Myers Squibb, we are delivering immediate and substantial value to Celgene shareholders and providing them meaningful participation in the long-term growth opportunities created by the combined company,” Celgene chief executive Mark Alles said in a joint press release.
Under the agreement, Celgene investors would come to own 31 percent of the combined company, receiving one Bristol-Myers share and $50 in cash for each Celgene share they owned. The deal also provided one “contingent value right” to each Celgene investor that would entitle the holder to potentially receive a one-time payment of $9.00 per share if a slate of Celgene drugs receive approval from the U.S. Food and Drug Administration ahead of certain deadlines.
But Mager Paruas said the agreement valued the three drugs at $6.3 billion—far below the $40 to $50 billion the firm claimed they would be worth over five years. Because the payment was deadline-based, the new management of the post-merger company would have “every incentive” to delay the approval process, the complaint said.
Spokespersons for Celgene and Bristol-Myers did not immediately respond Tuesday to calls seeking comment on the lawsuit.
The complaint also targeted Celgene’s officers and directors for allegedly breaching their financial duties in pursuing the deal. According to the filing, Alles and Celgene’s other executives would receive large severance payments if they quit or were fired from the company within two years of the merger closing.
Alles in particular, the filing alleged, had “used his influence” to get the board to approve the merger, which would entitle him to a cash payment of three times his annual salary base if he resigns with good reason or is terminated without cause. Absent a deal, Alles would only be entitled to twice his annual salary under those circumstances, it said.
“These executives who stand to personally profit from the proposed transaction are the same individuals who are responsible for the creation of the company’s projections and models upon which the board relied in determining that the proposed transaction was fair to stockholders,” Mager Paruas’ attorneys wrote.
The lawsuit, now the second to challenge the deal in Delaware Chancery Court, seeks an injunction to halt a stockholder vote on the merger, which is currently slated for April 12.
Mager Paruas is represented by Michael E. Criden and Lindsey Grossman of Criden & Love in South Miami and Lee Squitieri of Squitieri & Fearon in New York. Carmella P. Keener of Rosenthal, Monhait & Goddess is acting as local counsel in the case.
An online docket-tracking service did not list counsel for Celgene, its executives or Bristol-Myers.
The case, captioned Mager Paruas v. Alles, has not yet been assigned to a judge.