beyondbrics

It would have been the biggest ever western takeover of a mainland Chinese company. But Charles River’s $1.6bn deal for WuXi PharmaTech is off.

The shareholders, and the market, will almost certainly breathe a sigh of relief.

The deal, which would have given Charles River R&D facilities in Suzhou, Tianjin and Shanghai, was deemed too expensive (the price represented a 28 per cent premium at the time of bidding), as Justine Lau writes today on ft.com:

Jana Partners, the US activist hedge fund and Charles River’s biggest shareholder with a 7-per-cent stake, said the deal would be “the wrong choice” for the US company because of the lack of synergies from the merger and the large takeover premium.

“The proposed revenue synergies are highly speculative and run counter to established industry dynamics,” Jana said. “Even if the proposed transaction could generate the claimed benefits, the return on Charles River’s investment would still be inadequate.”

The market clearly agreed, as Bloomberg notes.

Charles River shares have lost a fifth of their value since the takeover was announced and fell $1.95, or 5.8 percent, to $31.95 in New York Stock Exchange composite trading yesterday, the worst drop in three months. WuXi declined 22 cents, or 1.5 percent, to a four-month low of $15, valuing the Shanghai-based company at $1.04 billion. The stock jumped 17 percent on the day of the takeover announcement and has since plunged 23 percent.

So Diageo’s purchase of Sichuan Swellfun (which makes ‘Scent Dynasty’ green-plum wine) remains the biggest western takeover to date – at $952m. But for how long?