Facing opposition over its $1.6 billion merger with WuXi Pharmatech, Charles River Laboratories International is wooing support for the deal with a new investor presentation and positive responses from clients.
Looking to bolster support for its proposed, $1.6 billion merger with Shanghai-based WuXi PharmaTech (Cayman) Inc. (NYSE:WX), Charles River Laboratories International Inc. (NYSE:CRL) is mounting a public relations push to tout the deal’s merits.
The merger drew vociferous opposition from some of CRL’s top investors soon after it was announced in April. Aiming to drum up more support for the acquisition, CRL issued a revised investor presentation summarizing the deal and its benefits — including an estimated $75 million to $100 million in annual “revenue synergies” — and highlighting positive reactions from its clients.
Using Informed Awareness to Transform Care Coordination and Improve the Clinical and Patient Experience
This eBook, in collaboration with Care Logistics, details how hospitals and health systems can facilitate more effective decision-making by operationalizing elevated awareness.
CRL chairman, president and CEO James Foster said in prepared remarks that the deal would create “significant additional shareholder value” and the world’s first fully integrated global early-stage contract research organization. The annual revenue synergies are expected to drive “incremental operating income” of between $20 million and $30 million, according to thepresentation, and the deal “enhances top-line growth potential” by 200 basis points. The total annual pre-tax cost synergies are expected to be $20 million, according to the presentation.
Foster also cited “overwhelming support” from Charles River Labs clients for the deal, quoting senior research executives at two top-five pharma companies and one “top tier” biotech firm.
With both companies’ shareholders slated to vote on the merger August 5, approval by CRL stockowners is far from assured after several top investors expressed their antipathy to the deal.
The merger, revealed April 26, first met with stiff opposition from New York-based hedge fund Jana Partners Inc. and managing partner Barry Rosenstein. In a June 7 letter to company officials, Jana managing partner Barry Rosenstein said he had “serious doubts about the wisdom of pursuing this transaction at this time.” In particular, Rosenstein said Charles River’s current low share price would give WuXi a disproportionately large share of the combined companies — equaling a nearly 27 percent stake at CRL’s price of around $32.44 a share.
With the Rise of AI, What IP Disputes in Healthcare Are Likely to Emerge?
Munck Wilson Mandala Partner Greg Howison shared his perspective on some of the legal ramifications around AI, IP, connected devices and the data they generate, in response to emailed questions.
Charles River Labs was quick to defend the deal. CEO James Foster wrote that the buyout would increase long-term top- and bottom-line growth for CRL, compared with doing nothing or the share repurchasing plan favored by Jana and Neuberger Berman.
WuXi’s organic revenue growth rate, which exceeded 40 percent over the last three years, makes it one of the fastest-growing contract research organizations in the world, Foster wrote. That growth would increase the value of CRL’s shares, he noted, adding that WuXi is China’s largest contract research organization.
Two other institutional investors, Neuberger Berman LLC and Relational Investors LLC, failed to buy into those arguments and also chimed in with their objections.
“Between the stock price reaction and shareholders’ disapproval, it should be clear to management and the board that walking away from this transaction is the right thing to do,” Relational principal and managing director Glenn Welling told the Reuters news service. “We hope they get the message.”
“Without belaboring the point and put simply, the very rich price being paid for WuXi allows for no margin of error. In our opinion, the proposed transaction with WuXi represents an unacceptable elevation of financial and operational risks to CRL, and therefore, our investment,” added Neuberger Berman, according to a regulatory filing.
Citing Charles River’s 2004 buyout of Inveresk for $1.5 billion, which was plagued by integration difficulties and saw CRL sell off significant portions of the acquisition just two years later, the investment firm said it was “perplexed” that CRL would embark on another, massive acquisition.
“The Inveresk transaction was also billed as transformational, promising to accelerate the growth and size of available markets to the company. Instead, the transaction resulted in a $700 MM write-off with growth and consistent profitability remaining elusive in the company’s pre-clinical operations,” Neuberger Berman wrote, according to the filing. “CRL’s management needs to demonstrate that its current assets can generate returns well in excess of its cost of capital before being allowed to spend $1.6B of capital. We firmly believe that the CRL’s shares are significantly undervalued and that a bright future lies ahead for the core businesses of CRL. In our view, a free cash flow financed share repurchase program would demonstrate confidence in CRL’s current asset base and be an excellent use of capital.”
The Massachusetts Medical Devices Journal is the online journal of the medical devices industry in the Commonwealth and New England, providing day-to-day coverage of the devices that save lives, the people behind them, and the burgeoning trends and developments within the industry.
