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Bristol-Myers, Celgene agree to $2.2B termination fee in blockbuster deal

Bristol-Myers Squibb Co. and Celgene Corp. have set a $2.2 billion termination fee for their blockbuster $74 billion deal should either party back out before completion.

The companies on Jan. 3 announced the massive deal — the first major pharma M&A activity of 2019 — that will bring the companies together amid increasing competition in the cancer drug markets. The deal is valued at $95 billion including equity, assumed current liabilities and net of current assets, according to data from S&P Global Market Intelligence.

According to a Jan. 4 regulatory document, both companies have set the $2.2 billion penalty in the event that either side terminates the mega deal for any number of reasons.

For instance, Celgene will have to pay the fee if the company finds a better deal elsewhere, or in the event that its board changes its mind about the deal and Bristol-Myers moves to terminate. Bristol-Myers will have to pay the fee if its board changes its recommendation on the deal.

The Bristol-Myers regulatory document also noted that Celgene will be operated as a wholly owned subsidiary of Bristol-Myers. Two members of Celgene's board will be appointed to the new parent company's board as well.

A termination fee is a typical clause in an acquisition agreement, and multibillion-dollar deals typically demand a higher penalty. The fees provide some security that both sides will follow through with the deal.

In the pharma space, Takeda Pharmaceutical Co. Ltd.'s $62 billion takeover of Shire PLC calls for a more than $900 million fee if Takeda backs out; however, most regulatory approvals and closing conditions have been met and that deal is expected to close Jan. 8.

According to data from S&P Global Market Intelligence, the Celgene deal is a little more than a billion dollars shy of the $3.5 billion termination fee set for Pfizer Inc.'s failed bid to take over Allergan PLC in 2015, a deal valued at more than $190.8 billion. After the U.S. federal government blocked the deal, both parties mutually agreed to terminate. Pfizer ended up paying just $150 million in fees to Allergan once the terms were settled.