Bristol-Myers Squibb has $2.2 billion at stake if its deal to acquire Celgene falls apart, and opposition is mounting

• Opposition to pharmaceutical company Bristol-Myers Squibb's $74 billion acquisition of Celgene is growing.

• The deal is facing pushback from Bristol-Myers' second-largest shareholder, the investment firm Wellington Management, as well as from activist investor Starboard Value.

• If Bristol-Myers shareholders oppose the deal at an April meeting, the pharma giant may owe Celgene $2.2 billion and other fees.

• The deal will probably still go through, Jefferies analyst Michael Yee said.

• Watch Celgene trade in real time.

Opposition to Bristol-Myers Squibb's megadeal for biopharma Celgene is growing, with the latest pushback coming from a prominent Bristol-Myers investor, the firm Wellington Management.

That could pose trouble for the $74 billion deal, since Wellington owns a nearly 8% stake in Bristol-Myers. Bristol-Myers' fifth-largest shareholder, Dodge & Cox, is also unhappy with the deal, according to The Wall Street Journal, and activist investor Starboard Value opposes it.

This sets the stage for a showdown on April 12, when Wellington and other Bristol-Myers stockholders will vote on the deal.

If the deal falls apart, Bristol-Myers could owe Celgene a $2.2 billion breakup fee, plus up to $40 million for Celgene's expenses tied to the merger, according to a financial filing. Celgene stock plunged 7.5% on Thursday, as investors became less confident that the deal would happen, while Bristol-Myers rose 0.5%.

Wellington said it opposes the transaction because the deal asks Bristol-Myers shareholders to take on too much risk and gives Bristol-Myers shares away at too low a price.

"While Wellington agrees that Bristol-Myers should be active in business development that secures differentiated science and broadens the future revenue base, Wellington does not believe that the Celgene transaction is an attractive path towards accomplishing this goal," the investment firm said in a statement.

Read: Here's why Bristol-Myers Squibb's record-breaking $74 billion biotech deal is facing investor backlash

Bristol-Myers, meanwhile, said it still thinks the deal is the right move. The company said in a statement that it has had "numerous" talks and meetings with stockholders since the January announcement, including Wellington.

"We believe that we are acquiring Celgene at an attractive price, and that this transaction presents an important and unique opportunity to create sustainable value," the company said.

Opposition grows

Bristol-Myers and Celgene are both prominent pharmaceutical companies, with valuable franchises that are facing competition and a strong need to develop profitable, innovative new products.

In combining, the companies sought to reduce each of their levels of risk, a person who worked on the deal told Business Insider in January. But others have questioned whether that's a strategy that will work.

A lot is on the line: Including debt, the deal is the largest ever in pharma, topping Pfizer's 1999 acquisition of Warner-Lambert and last year's Takeda-Shire deal, according to Bloomberg News. If the deal goes through, Bristol-Myers Squibb and Celgene will go from the 13th- and 21st-biggest biopharma companies by revenue to the seventh-largest, according to an Informa Pharma Intelligence analysis.

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

Vanguard is the largest holder of Bristol-Myers, with an 8.1% stake, followed by Wellington (7.7%), BlackRock (7.1%), State Street Corp (4%), and Dodge & Cox (2.6%) according to filings compiled by Bloomberg.

Starboard Value isn't among the top investors, with holdings of just a million shares, according to CNBC.

Starboard Value intends to vote all of its shares against proposals related to the acquisition, it said in a 16-page letter to other shareholders on Thursday, calling the acquisition "poorly conceived and ill-advised."

Why the deal could still go through

Yet there are plenty of reasons for Bristol-Myers shareholders to vote in favor of the deal come April, Jefferies analyst Michael Yee said. Yee said the vote will probably be in favor of the deal.

One big reason is that about a quarter of stockholders also own Celgene stock, especially index funds. If the deal falls through, they'll have big losses, since Celgene's stock would fall "significantly," according to Yee.

Moreover, those who did have an issue with the deal probably already sold their shares, meaning they can't vote on the transaction, Yee said. Bristol-Myers shares tumbled more than 13% after the deal was announced, while Celgene shares surged.

Negotiations over the breakup fee

Negotiations between Bristol-Myers and Celgene first started up in 2017, before sputtering. But last year, they started talking again.

As conversations heated up in December, there was back-and-forth about the termination fee.

Deals can be broken up for a variety of reasons. Under Bristol-Myers' agreement with Celgene, there are certain circumstances under which Bristol-Myers owes Celgene the $2.2 billion fee, including if its stockholders don't vote in favor of the deal. At the same time, the agreement says that Celgene could owe Bristol-Myers a breakup fee, including if its shareholders don't vote in favor, or if the biopharma agreed to a different acquisition.

At one point, during the discussions, Bristol-Myers pushed for a breakup fee worth 3.75% of the deal's equity value, meaning both parties would owe the other that amount if something interrupted the deal.

Celgene countered with a different proposal in late December: that if something held up the deal on Celgene's end, like for example, an acquisition by another company, Celgene would owe Bristol-Myers just 2% instead. The 2% figure would have applied just to Celgene, according to a financial filing.

Ultimately, during the final stretch of negotiations, they settled on a $2.2 billion fee, amounting to just under 3% of the equity transaction value.

For comparison, when CVS Health agreed to buy health insurer Aetna for about $70 billion in 2017, the breakup fee was roughly the same: $2.1 billion, or about 3% of the total deal price.