JANA Partners Addresses Charles River's Latest Defense of Proposed WuXi Acquisition
WuXi Acquisition Returns Analysis (1)
2011 2012 2013 2014 2015
Return to Charles River excluding synergies 7% 8% 9% 9% 9%
Return to Charles River including synergies 8% 10% 10% 11% 11%
(1) Returns calculated by dividing (1) the sum of GAAP net income and depreciation & amortization by (2) the sum of Charles River stock and cash consideration, conversion of WuXi options, WuXi net debt assumed, deal related expenses and WuXi capital expenditures. Synergies (a) incorporate the announced $20MM of pre-tax cost synergies taxed at a 25% tax rate in 2011 and thereafter, (b) assume a one-time pre-tax restructuring charge of $30MM which is included in invested capital and (c) include newly announced revenue synergies of $100MM in 2013 (the high-end of Charles River synergy guidance) and initial revenue synergies of $33MM in 2011 and $67MM in 2012, in each case at an assumed 30% operating margin, growing in-line with operating income projections thereafter and taxed at a 25% tax rate. WuXi GAAP net income through 2012 based on adjusted operating income projections per Charles River's latest proxy statement, 14% tax rate per midpoint of WuXi 2010 guidance, and assumes $9MM reduction for after tax share based compensation per 2009 actual results. 2013–2015 WuXi operating income based on Jefferies' research estimates. 2013–2015 WuXi operating income growth rate based on Jefferies' research projected growth rate of operating income for the same period. Depreciation expense through 2012 based on difference between WuXi adjusted EBITDA and operating income estimates per Charles River's latest proxy statement; thereafter assumed to grow in-line with capital expenditure growth rate. 2011–2015 capital expenditures per Jefferies' research estimates. Charles River stock consideration valued per Charles River transaction presentations, using Charles River closing price of 4/23/2010 (closing price prior to transaction announcement) and based on 75MM diluted WuXi shares, for a total stock and cash consideration of $1.6 billion. Conversion of WuXi options valued at $39MM per Charles River proxy. Deal related expenses include Credit Suisse seller advisory fee (not disclosed but assumed to be equivalent to $12MM JP Morgan buyer advisory fee) and assumed $24MM in financing fees related to Charles River's $1.2bn credit facility.