Jana Partners LLC, a New York based hedge-fund firm with $2.7 billion in assets, said it opposes Charles River Laboratories International Inc.’s purchase of WuXi PharmaTech (Cayman) Inc.
Jana, which owns 7 percent of Charles River, is the largest shareholder of the Wilmington, Massachusetts-based drug-testing company. The firm said it would vote against the stock issuance needed to complete the proposed acquisition.
Charles River said in April it would pay about $1.6 billion, or $21.25 a share in cash and stock, for WuXi as a way to expand into China, where it would benefit from cheaper labor and laboratory costs. It would be the largest foreign takeover of a Chinese company.
“We have serious doubts about the wisdom of pursuing this transaction at this time,” Barry Rosenstein, head of Jana, wrote in a letter to the company filed today with the U.S. Securities and Exchange Commission. “Even if the contemplated benefits can ultimately be realized, we believe that the high cost, significant integration risks and inopportune timing simply make the proposed acquisition the wrong path for Charles River shareholders.”
Charles River is paying about 16 times WuXi’s estimated 2010 earnings before interest, taxes, depreciation and amortization, Rosenstein said in the letter. The price “cannot be justified” given that the company’s gross profit margins have declined every year since 2003, he said.
The timing of the purchase is bad for Charles River shareholders, Rosenstein said, as the stock is down more than 50 percent from its highs in August 2008.
Amy Cianciaruso, a spokeswoman for Charles River, didn’t immediately return a call seeking a comment.
Charles River shares rose $1.06, or 3.3 percent, to $33.50 as of 4:49 p.m. in New York trading after the close of U.S. exchanges. WuXi’s U.S.-traded depositary receipts fell $1.20, or 6.8 percent, to $16.55.