Charles River calls a halt to WuXi merger plans
pharmafile | August 4, 2010 | News story | Research and Development |Â Â Charles River Laboratories, WuXiÂ
Charles River Laboratories has terminated its $1.6 billion agreement to acquire Chinese contract research organisation WuXi PharmaTech after an investor revolt scuppered the deal.
Later this week Charles River’s shareholders were scheduled to vote on the deal, but Charles River called it off after it became clear that approval was by no means guaranteed.
Much of the investor opposition was mobilised by investment group Jana Partners, currently the largest shareholder in the company with around 7% of the total equity, which said that the benefits of a link-up with WuXi were “highly speculative” and that the price being offered was “unreasonable”.
Some analysts had also indicated they thought the deal was too expensive, and would have left Charles River with hefty debts and shrunken cash reserves.
Charles River, which specialises in contract research services and laboratory equipment and is one of the world’s largest lab animal suppliers, said it will pay a $30 million breakup fee to WuXi as a result of the decision, and will also mount a $500 million share buyback campaign to try to fortify its share price.
James Foster, Charles River’s chief executive, said he was disappointed by the decision, as a link with WuXi “would have created the premier early-stage contract research organisation [with] long-term strategic benefits for our business and our shareholders”.
When the deal was first announced back in April Foster said the alliance would make it easier to secure strategic-level agreements with biopharmaceutical majors because the combined company would be able to offer services across North America, Europe and Asia.
Foster insisted the company would continue on the same strategic path as before to “build our early development capabilities, specifically our discovery services”. Similar sentiments were voiced by WuXi chief executive Ge Li, who said that normal service had resumed with an emphasis on continuing to grow the company organically.
Meanwhile, both Charles River and WuXi posted their second quarter results in the wake of the announcement.
Charles River said revenues decline 5% compared to the same period of 2009 to a little over $290 million, with turnover at its preclinical services (PCS) unit down 12% and research models and service (RMS) largely flat. Operating profit also fell 45% to $28 million.
WuXi posted a more buoyant set of results, with operating profit up 18% to $16 million – despite the costs of preparing for the Charles River transaction – on revenues up 21% to $81 million.
Phil Taylor
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