Hedge funds manipulating $74B pharma deal: Starboard CEO
By Josh Kosman and Carleton English
March 11, 2019 | 11:14pm
Bristol-Myers Squibb sign
An activist investor is probing whether hedge funds are using a controversial stock-trading tactic to tip the vote in favor of pharma giant Bristol-Myers Squibb’s $74 billion deal to buy rival Celgene, The Post has learned.
Starboard Value — whose boss Jeff Smith has blasted the merger as too expensive for Bristol-Myers shareholders — has launched a books-and-records request, partly to determine whether an upcoming shareholder vote on the cash-and-stock merger could be swayed by so-called “empty voting,” sources told The Post.
Specifically, sources close to Starboard say the fund is investigating whether hedge funds including billionaire Dan Loeb’s Third Point and D.E. Shaw purchased Bristol-Myers shares strictly for the sake of voting in favor of the deal.
At the same time, sources say Starboard is probing whether the same funds, in trades that are said to have been brokered with the help of Goldman Sachs, also have been shorting an equal or even greater amount of Bristol-Myers shares to eliminate their economic interest in the company — or even profit if its shares fall.
The suspicion, sources say, is that the hedge funds are seeking to profit on their shares in Celgene, which Bristol-Myers agreed to acquire on Jan. 3 for $102.43 a share. Celgene shares rose 1 percent, to $85.26, on Monday.
“The optics are terrible” if short sellers in Bristol-Myers end up swaying the vote to approve its controversial Celgene acquisition, one insider said. “What does this say about the deal?”
A spokeswoman for Third Point declined to comment, although a source close to the firm insisted that it hadn’t bought or shorted any Bristol-Myers shares. Reps for D.E. Shaw didn’t immediately respond to requests for comment.
If Third Point doesn’t want to be seen as owning Bristol-Myers shares, it could evade detection by buying through a broker who would then vote the way the fund wants, according to one source.
Bristol-Myers Squibb sign
Bristol-Myers to buy cancer drug maker Celgene for $74B
Third Point is said to have acquired Bristol-Myers shares right after Wellington Management announced Feb. 27 it had an 8 percent share in Bristol-Myers and was voting against the Celgene merger, two sources said.
If Starboard finds evidence of empty voting, the fund could file a suit before the April 12 voting deadline for the merger, another source said.
“Third Point, if it is a Bristol shareholder, has voting rights, except there’s a possibility a court might not count those votes if it decides Third Point is an ‘empty voter’ with negative economic ownership,” said Henry Hu, a professor at the University of Texas at Austin Law School.
“If Third Point has completely hedged out its economic interest in Bristol, then Third Point would benefit from Bristol offering an overly generous price for Celgene shares even if it’s not good from the standpoint of other Bristol shareholders,” Hu said.
FILED UNDER ACTIVIST INVESTORS , HEDGE FUNDS , MERGERS & ACQUISITIONS , PHARMACEUTICALS , SHAREHOLDERS , STARBOARD VALUE LP , THIRD POINT