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Charles River Calls off WuXi Deal

Investors kill the $1.6 billion acquisition.


The Burrill Report

“Even if the proposed transaction could generate the claimed benefits, the return on Charles River's investment would still be inadequate.”

Charles River Laboratories and WuXi PharmaTech terminated their acquisition agreement due to investor opposition by Jana Partners, Charles River’s largest shareholder. The contract research organization giant will pay WuXi a $30 million breakup fee as a result.

The $1.6 billion takeover, if it had gone through, would have been the largest foreign acquisition of a Chinese company and would have given Charles River facilities in Shanghai, Suzhou, and Tianjin in China–fast becoming one of the most important healthcare markets in the world.

Jana Partners, which had voiced its opposition to the merger from the beginning, issued a statement urging Charles River shareholders to vote against completing the proposed acquisition of WuXi just hours before a special stockholder meeting. Jana cited an excessive transaction price that relied on aggressive assumptions to value WuXi, and the speculative nature of expected synergies and strategic benefits, among its reasons for opposing the deal. It also noted it was not alone in its opposition as both ISS/RiskMetrics Group and Glass Lewis & Company had voiced similar sentiments.

“Even if the proposed transaction could generate the claimed benefits, the return on Charles River's investment would still be inadequate,” Jana said in the statement to Chares River shareholders.

“We also value our stockholders' views and given their 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,” says James Foster, Charles River’s chairman, president and chief executive officer, in a statement.

Along with the cancellation of the deal, Charles River announced a $500 million share repurchase program. Charles River shares fell 15.6 percent the day the acquisition was announced and have languished nearly 20 percent below their pre-announcement value since then. Shares rose 5.3 percent in premarket trading, however, after the deal was terminated.

“WuXi's strategy has not changed,” says Ge Li, WuXi chairman and CEO. Although disappointed that the transaction has been terminated, Li noted that its business is on track, having met or exceeded its second quarter targets. The company recently increased its guidance for full-year 2010 financial performance.

Shares of WuXi had jumped 17 percent in April on news of the deal but have dropped over 20 percent since then, and another 2.3 percent on news of the deal's termination.

Both companies will announce second quarter results on August 2.

July 30, 2010

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