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 said today it will pay WuXi a $30 million break fee after the companies agreed to end the $21.25-a-share cash-and-stock offer made in April. Wilmington, Massachusetts- based Charles River, which provides research and testing services to drugmakers, 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.
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.
“Charles River’s board and management must focus on reversing their history of poor performance and capital allocation decisions and start generating maximum shareholder value from their strong businesses if they wish to avoid further and more serious shareholder rebuke,” Barry Rosenstein, managing partner at New York-based Jana, said in an e-mail today.
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 canceled, 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 mainland China 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.