Charles River Laboratories International Inc withdrew a $1.6 billion bid for WuXi PharmaTech (Cayman) Inc, citing investor opposition to what would have been the largest foreign takeover of a China company.
Charles River will pay WuXi a $30 million break fee after mutually agreeing to end the $21.25-a-share cash-and-stock offer made in April, the Wilmington, Massachusetts-based provider of research and testing services to drugmakers said today. Charles River also said its board approved a $500 million share buyback.
Jana Partners LLC, Charles River's largest stakeholder, urged investors to vote against the deal, citing "highly speculative" benefits and an "unreasonable price," in a statement issued hours before the announcement. The takeover would have given Charles River facilities in Shanghai, Suzhou and Tianjin in China, where cheaper labor and laboratory costs are luring the world's biggest drugmakers including Novartis AG.
Given shareholder "concerns about the proposed transaction, and our commitment not to proceed without their support, we have decided that terminating the transaction is the appropriate action to take," said James C. Foster, Charles River's chairman, president and chief executive officer, in a statement.
Charles River shares have lost a fifth of their value since the takeover was announced and fell $1.95, or 5.8 percent, to $31.95 in New York Stock Exchange composite trading yesterday, the worst drop in three months. WuXi declined 22 cents, or 1.5 percent, to a four-month low of $15, valuing the Shanghai-based company at $1.04 billion. The stock jumped 17 percent on the day of the takeover announcement and has since plunged 23 percent.
Capital expenditure at Charles River hit a 10-year high of $227 million in 2007, according to data compiled by Bloomberg.
The company purchased Inveresk Research Group Inc for $1.5 billion in 2004 and also allocated about $600 million in the past five years to its preclinical-trial business, for an annual return of less than 5 percent, Jana said in a July 16 statement outlining its objection to the WuXi deal.
The takeover needed the consent of a majority of Charles River shareholders at an Aug 5 vote, which is now canceled.
RiskMetrics Group said this week that shareholders should vote against the deal because the price was too high.
The proposed transaction "leaves very little room for error, amplifying the potential execution risk," RiskMetrics, an investor advisory firm, said in a report. The future of the contract-research industry, in which companies such as Charles River and WuXi conduct drug studies for drugmakers, is uncertain, RiskMetrics said.
WuXi said its strategy won't change after the terminated agreement. "Our goal is, and has long been, to build a broad, integrated R&D service platform designed to help our customers improve the success of research and shorten the time of new product development," said Ge Li, chairman and chief executive officer, in a separate statement.
Charles River said it plans to use cash in hand, existing credit facilities and other forms of financing to fund the share repurchase. The latest buyback is separate from a previously announced $600 million program, under which Charles River purchased about 11 million shares. That plan has a balance of $145 million and has been cancelled, the company said.
The buyback reflects the board's "belief that our stock price is substantially undervalued and also its faith in Charles River's future prospects," Foster said.
The biggest announced takeover in Chinese mainland by a foreign company is Diageo Plc's 610 million pound ($952 million) purchase of liquor maker Sichuan Swellfun Co earlier this year, according to data compiled by Bloomberg.
