Icahn & ImClone Merger Game with Bristol-Myers: Bluff vs. Chicken (IMCL, BMY)

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Carl Icahn and friends at ImClone Systems Incorporated (NASDAQ: IMCL) have now formally responded to Bristol-Myers Squibb Company (NYSE: BMY) regarding the cash buyout of the company.  The company’s board of directors has formed a committee to study the matter and to retain advisors to advise it in determining the appropriate course of action, but the  preliminary view is that the offer "substantially undervalues ImClone."

If you find this surprising, then you didn’t look over trading whereImClone was trading above the $60.00 offer price and haven’t reviewed how onmany occasions where Carl Icahn rejected a first offer to hold out formore cash.

The board of directors has also been discussing the possibility ofseparating the company into its ERBITUX franchise and its pipelinebusinesses into two companies in order to maximize value.  The stillbelieve that ImClone’s pipeline business may be extremely valuable andsignificantly increase stockholder value as a separate business.

There is an interesting note here regarding conflicts.  Mr. Icahnstated that he was disturbed that one of the directors on the ImCloneboard (who is the Bristol-Myers designee) was privy to the informationdiscussed at previous meetings concerning the potential separation ofImClone into two separate components and how this restructuring mightenhance stockholder value.  The board is now reviewing whetherBristol-Myers had access to confidential information concerning ImCloneand its pipeline.

Icahn has also pointed out that ImClone has a pipeline antibody calledIMC-11F8 under development which might have a significant competitiveeffect on ERBITUX if given marketing approval and that Bristol-Myersmay have no rights to market that product under its existing agreementswith the company.

Icahn is again opposed to the Bristol-Myers offer because he believesthat "it greatly undervalues the company" and the company indicatedthat other large stockholders have given statements indicating theiropposition to the Bristol-Myers offer.

The saga continues.  Shares are trading down by 0.5% in pre-markettrading at $65.00 on somewhat thin volume considering the scope of thisdeal. 

Jon C. Ogg
August 4, 2008