Bristol-Myers Squibb & Celgene Combined Could Generate Earnings of Over $6 Per Share In The Coming Years
Bristol-Myers Squibb (NYSE:BMY) announced that it has agreed to acquire Celgene Inc. for $50 per share in cash and one share of Bristol-Myers Squibb for each share of Celgene, which translates into a $74 billion transaction value and $90 billion if we include the debt. Additionally, Celgene shareholders get contingent value right (CVR), entitling the holder to receive $9.00 in cash, subject to the U.S. FDA approval of ozanimod, liso-cel, and bb2121. We currently estimate Bristol-Myers Squibb’s valuation to be $90 billion, and the deal appears to be more or less around that figure. The company expects annual cost synergies of $2.5 billion by 2022. The overall deal appears to be a step in the right direction for Bristol-Myers Squibb from a financial view, with future earnings of over $6 per share. We have created an interactive dashboard ~ What Is The Implied Valuation of the Bristol-Myers Squibb And Celgene Merged Entity ~ that shows our earnings calculation for the combined entity. You can adjust various drivers to arrive at your own estimates.
We forecast Bristol-Myers Squibb’s total revenues to be around $22.2 billion while Celgene revenues are expected to be around $15.2 billion in 2018. The sales of combined entity will likely be around $37.4 billion. Looking at overall adjusted expenses, we estimate them to be $14.6 billion and $7.5 billion for Bristol-Myers Squibb and Celgene respectively. For calculation purposes, we assume the cost synergies of $2.5 billion, translating into pre-tax profit of $17.9 billion. Note that you can adjust these drivers, including the cost synergies, to arrive at your own estimates. We use the effective tax rate of 17%, in line with guidance for 2018, to arrive at adjusted net income of $14.8 billion. Total shares outstanding for both the entities add up to 2.4 billion, translating into earnings of $6.24 per share, assuming full impact of cost synergies. This is much higher than the current earnings estimate of $3.85 for Bristol-Myers Squibb on an adjusted basis.
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Our current price estimate of $56 for Bristol-Myers Squibb is based on expected adjusted earnings of $3.85 per share and an earnings multiple of 14.5x. For Celgene, earnings are estimated to be $8.75 per share, and a multiple of 7.5x gives us a $66 price, which is closer to the Wednesday’s close price. We use the weighted average multiple of 10.7x to arrive at $67 share price estimate for the combined entity. This will translate into an implied valuation of $159 billion. Note that net debt of Bristol-Myers Squibb is around $500 million while that of Celgene is $16 billion, which when added to the $74 billion payout to Celgene shareholders, adds up to $90 billion in total transaction value for the merger. Bristol-Myers Squibb will own 69% of the merged entity while the rest will be owned by Celgene.
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