Bristol-Myers Squibb is in the process of acquiring Celgene in a $74 billion dollar cash-and-stock deal including debt. The deal faced opposition from hedge funds Wellington Management and Starboard Value, but ultimately gained shareholder approval on April 12th.
Arbitrageurs, who aim to profit from the discrepancy between the market price and the deal closing price, seem to have shorted BMY stock as a hedge, in order to protect their returns. The stock is set to open at $45.64 today, down from $54.38 in early March. In reality, BMY stock has been under pressure since July 2016, when it reached an all-time high of $77.12 a share.
The acquisition is expected to close in Q3 2019. From then on, management will have to deal with shareholder dilution, debt reduction and the integration of Celgene into Bristol-Myers. Despite the high quality of Celgene’s business, risks for long-term BMY investors have increased significantly. A lot can go wrong, but the actual outcome – positive or negative – will remain unknown for some time.
Bristol-Myers, A Pattern Has Emerged
Fortunately, we can look at the situation from another angle. It looks like all the news around BMY stock in the last three years, all the earnings reports, drug successes and failures, analysts’ upgrades and downgrades led to the formation of a recognizable Elliott Wave pattern. Take a look at it on the daily price chart of Bristol-Myers Squibb below.
The daily chart reveals that the entire decline from $77.12 can be seen as an A-B-C flat correction. Waves A and B are simple a-b-c zigzags, while wave C appears to be an ending diagonal.
Prior to this retracement, BMY stock was in an uptrend. According to the Wave theory, once a correction is over the larger trend resumes. If we apply this here, it makes sense to expect a bullish reversal as wave 5 of C is poised to complete the entire pattern soon.
Despite all the risks, the market seems ready to give the BMY-Celgene deal its vote of confidence. The anticipated rally is supposed to regain all the value lost since July 2016. If this count is correct, a revisit of $77 a share is quite possible. Once there, $90 will not be too far away.
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