15.

445 M&APE
Intro Case

Feb 3, 2022
 Motivation
• What motivated Merck to buy Acceleron?
• Why was Acceleron willing to sell?
Big new add to Merck drug pipeline but
doesn’t add anything to BMS drug pipeline,
i.e. essentially doubling down current
exposure to Reblozyl and Sotatercept

Merck has significant % concentration on

cancer drug Keytruda with LOE in 2028

Possible strategic synergy from

Merck R&D, products & history in
treating cardiovascular disease

Projected Acceleron SG&A → potential after-

tax savings of $26/shr at 8% discount rate

Lose value of Acceleron NOL in change-

of-control but gain value from utilizing
losses because of Merck taxable income
Merck willing and able to use its balance
sheet – back up to 1.4x EBITDA pro forma

Basically a pure financial deal for BMS

(royalty for royalty) so no reason to pay
a premium; for Merck the price is OK
 Motivation
• What motivated Merck to buy Acceleron?
• Why was Acceleron willing to sell?

Projections are risk-adjusted; instructor

hasn’t got probabilities used for reference;
selling now means missing very high IRR if
Sotatercept is successful – but with big risk

$700M cash on hand not quite enough to

get early phase III results without
additional financing; could probably get
ABS royalty financing or sell Reblozyl
revenue stream to avoid selling equity

Board disclosure in recommending deal:

“The Company has limited marketing, sales
and distribution experience and capabilities,
and…would need to develop or access such
capabilities”

Piling up additional NOLs with no income

Large deal may limit potential buyers & BMS

probably not interested at a premium; sell
now to Merck at an attractive premium to a
relatively strong share price might be the
best value for Acceleron shareholders if the
company doesn’t want to wait for phase III
 Tender Offers
• Merck began this deal with a $180 tender offer
• What is that?
• Buying a large % of shares requires a formal offer
• The offer is regulated under 1968 Williams Act
• Has to follow certain rules, e.g. here are some:
– The offer remains open to tenders for 20 business days
– All share purchases under the offer are at the same price
– Shareholders can tender or withdraw at any time
– If the offer is amended, the deadline is extended
– There can be conditions attached to the offer
– Offer for any and all, or a specific number of shares
– If too many shares tender, they are purchased pro rata

The most common condition is
that at least 50% of the company’s
shares are tendered.
Merck committed to buy Suppose that a company has 200M
any shares tendered and shares and the buyer proposes to
all shares tendered – but buy 100M or 50%. If 75% of the
in some cases companies shares (150M) are tendered, the
seek to buy only a buyer will purchase ⅔ of the shares
certain number (100M) from each shareholder and
return the other ⅓ (50M).
 Tender Offer Ad
Merck was seeking to October 12, 2022
buy all of the shares
that were tendered

The price was $180

per share cash

ASTROS was a one-

time subsidiary set
up by Merck to
make the offer

The offer would

remain open for
20 business days

No brokerage
fee or spread

At least 50.1% shares

had to be tendered
as a condition

Antitrust approval
& other regulatory
conditions

No financing
condition
 Share Value Info

Note:
• Tender price was higher than past history
– 2019 ended $53 before PULSAR announcement
– 2021 range measured before market leaks
• Risk adjusted DCF per deal bankers
– Range reflects ± Reblozyl scenarios
– Also reflects 8½-10½% range of discount rates
• Precedent transactions per deal bankers
– Based on % premiums to prior market price
– BMS and one other pharma did not bid and no
other buyer emerged after the announcement
 Do You Want to Tender??
• Yes
• No
• Can’t decide is the same as no… there are no other choices
Note: if less than 50% tender this deal will not happen
 Now What?
Acceleron Merck
Public Shareholders Shareholders
36.7%

Merck Lenders

63.3%
Acceleron Astros Subsidiary

Reblozyl &
Sotatercept

• The Merck tender offer expired in November

• 63% of the Acceleron shares were tendered
• But wait…
• Merck doesn’t want 37% minority ownership
• Do you see some of the issues that would raise?
• Stay tuned
 Evaluating M&A
Why pay a premium for Acceleron?
Are M&A deals like this worthwhile?
How can we figure out if M&A is justified?
• Surveys & opinions
• Post-merger performance
• Field studies, i.e. cases
• Market Reaction

“The overwhelming evidence from both the historical and recent

studies confirm the existence of wealth gains from M&A transactions
as measured by the market reaction to the deal, a benchmark that is
widely accepted in the finance profession.”
Mulherin, Netter & Poulsen: The Evidence of Mergers and Acquisitions,
The Handbook of the Economics of Corporate Governance, 2017
 Market Reaction Data
• Most event studies of M&A were some time ago
• A 2017 survey is posted on Canvas for interested students
• A better 2004 Bruner survey is also posted on Canvas, e.g.
More Reaction Data
• Lots more event studies
• Breakdown buyers & targets
• No much groundbreaking research
• And only so much new to learn

• Issues with event studies

Market leaks
Skewed by deal probabilities
Other new information conveyed
Time for info to fully disseminate
And other noise going on
• Statistical findings to remember
Target premiums: +++
Combined target & buyer: +
Reaction to buyers only: ??
 Reaction to This Deal
• Deal news does not always come at a bright line in time
• Deal premiums can sometimes be difficult to measure

Bloomberg article What do Acceleron shareholders

identifies Acceleron in expect to happen at this point?
$200deal but doesn’t
$180
identify Merck Deal announced the
last day in Sep 2021
$180
Deal Certainty < 100%
Merck trades flat on the
deal announcement. Then,
on Oct 1, Merck announced $160
positive interim results for
its oral antiviral drug, Wow!!! Merck
Molnupiravir market value
$140
increased by
over $20B
$120 Pharma/Biotech Index Merck Index

Acceleron Share Price

Undisturbed $100
Acceleron price
per bankers

Be Humble