Bristol-Myers Squibb and Celgene said their huge merger has about $2.5 billion in synergies. That should make employees nervous.

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Bristol-Myers Squibb and Celgene said their huge merger has about $2.5 billion in synergies. That should make employees nervous.

Bristol-Myers Squibb CEO Giovanni Caforio

  • Bristol-Myers Squibb is buying biotech giant Celgene in a $74 billion deal.
  • The deal combines a massive pharmaceutical company with a biotech giant, both of which have a big presence in the development of cancer drugs.
  • BMS said that it's expecting to realize $2.5 billion in synergies by 2022, a term that should make employees of the two companies nervous.

Bristol-Myers Squibb and Celgene started 2019 off with a bang, announcing plans on Thursday to combine in a $74 billion deal.

Celgene shareholders will be paid $50 and one BMS share per Celgene share, valuing Celgene at about $102.43 a share. The deal combines a massive pharmaceutical company with a biotech giant, both of which have a big presence in the development of cancer drugs.

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In a press release announcing the deal, the companies used a word that should make BMS and Celgene employee nervous: "synergies." BMS said it expects to achieve $2.5 billion in synergies by 2022.

Read more: Bristol-Myers Squibb is buying Celgene in a $74 billion deal

Essentially, synergies is a fancy word for opportunities for cost cutting. It's areas where investment bankers or the firms involved in the deal have identified redundancies or opportunities to make the combined company leaner, thus saving on costs.

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"This deal is really all about the launches, the pipeline, the value of the synergies," Caforio said in the call.

While synergies can also mean cutting redundancies in things like software and machinery, a large chunk of the savings typically comes from reducing the number of employees at the combined companies.

In a presentation to investors, the company gave several clues about where it's likely to cut costs. About 55% of the savings are expected to come from selling, general and administrative expenses, a catch-all that describes many of the functions that help a company run.

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Another 35% will come from the research and development budget, including cuts to "overlapping resources."

Still, BMS Chief Financial Officer Charles Bancroft said the companies want to "retain talent, protect key value drivers and leverage the enhanced scale of the new company."

You can see the full slide below:

Screen Shot 2019 01 03 at 9.56.58 AM

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