Why Bristol-Myers Won't Pull Its ImClone Bid

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Bristol-Myers Squibb's (NYSE: BMY) CFO, Jean-Marc Huet, recently spoke at a Merrill Lynch health care investor conference. He discussed how Bristol-Myers might drop its cash bid of $60 per share to acquire longtime partner ImClone Systems (NYSE: IMCL). Will it or won't it? Let's see.

A little background first: Bristol-Myers already owns nearly 17% of ImClone's common stock and in late August made the bid to acquire the remaining 83% it doesn't own. Rewind to when ImClone announced that an unnamed drugmaker had made a $70 per share, non-binding cash "proposal" to acquire ImClone subject to due diligence work.

In response to a question at the investor conference, Huet stated that it was "willing to walk away" from its offer. While the posturing may be meant to signal that it doesn't want to raise its bid for ImClone, there is little reason to believe that it will actually pull its acquisition offer as long as market conditions don't change.

Imagine you are the CEO of the mystery pharmaceutical company, Company X, that proposed the non-binding $70 a share offer last week. After doing the several weeks of due diligence that all drugmakers should when investigating a potential acquisition, you will likely have found several lesser-known risk factors for ImClone. For instance, Bristol-Myers claims that it has rights to follow-ons to ImClone's Erbitux, while ImClone says, "No, you don't." A fight over this could be expensive for Company X if it acquires ImClone. Therefore, you as the CEO could argue why your $70 a share offer is too rich and ImClone should accept a lower offer.

But not too much lower. Keeping that Bristol-Myers bid open forces Company X to offer significantly more than that $60 to let ImClone justify not going with its Erbitux partner, Bristol-Myers. Huet wouldn't be too disappointed to force a rival to overpay to acquire ImClone. And his company gets a bit of a benefit from that as it already owns 17% of ImClone.

Or Huet could be calling a bluff being run by Carl Icahn to try to force Bristol-Myers to up its bid. Huet's decided not to play along. After all, we don't know who Company X is or even if that $70 bid is real. Further, after failing to help push through acquisition deals with Yahoo! (Nasdaq: YHOO) and Biogen Idec (Nasdaq: BIIB) in the past twelve months, Carl Icahn probably wants to show that he can get a deal completed.

So Bristol-Myers is likely either to get ImClone for $60 per share or to get a higher price for its share of ImClone and the benefit of forcing another company to overpay. Either way, Bristol-Myers isn't going to just pull its bid off the table.