Company: Charles River Laboratories (CRL)
Business: Charles River Laboratories is an early booker research company. The company participates in laboratory medicine and science (research model technologies) and has developed a portfolio for discovery and security assessment services. The company works in three segments: research models and services (RMS), discovery and security assessment (DSA) and manufacturing support (production).
Market value: USD 6.82 billion (USD 138.79 per share)
Activist: Elliott Investment Management
Property: 12.5%+
Average costs: n/a
Activist comment: Elliott is a very successful and clever activist investor. The company of the company includes analysts of leading technical equity companies, engineers, company partners -former technology CEO and COOS. When evaluating an investment, Elliott also stops special and general management consultants, expert cost analysts and industry specialists. The company often observes companies many years before investing and has an extensive stable of impressive board candidates. Elliott has concentrated on strategic activism in the technology sector in the past and was very successful with this strategy. However, Elliott's activism group has grown in recent years, and the company has carried out much more governance -oriented activism and creates value from a much larger width of companies.
What happens
On May 6, Elliott and Charles River Laboratories Entered Into A Cooperation Agreement in which Four Incumbent Directors Won't Seek Re-Election and the Follow Four Individuals Will Be Appoint as Directors: Steven Barg (Global Head of Engagement at Elliott) and Mark Enyedy (Former Presued and CEO of immunogen) (Both are Known as the “Investor Designated Directors”), Along with Paul Graves (CEO of Rio Tinto Lithium) and Abraham Ceesay (CEO from Rapport Therapeutics). In addition, Charles River agreed to appoint at least one investor designated director for each of the strategy committee, the remuneration committee and the corporate governance and nominal committee. Finally, Charles River agreed that the strategic committee will carry out a strategic review in which the investor is determined that directors are appointed Strategic Committee.
Behind the scenes
Charles River is involved in the support of early phase research and development. The company discovers its own drug candidates and determines whether it has a potential to be effective and whether they are sure enough for human attempts. Charles River works via three segments: research models and services (20.48%of sales), discovery and security assessment (60.52%) and manufacturing solutions (19.00%). Charles River is by far the leading in pre-clinical development, with each business section to benefit 35% to a 40% market share, which is generally twice as large as the No. 2 player. The company has grown organically for years, while at the same time it consolidated the industry through acckritine and intelligent mergers and acquisitions. These important growth trends were continued in Covid-19, which, like many colleagues, dissolved the business when financing was flooded in new and new science through a growing interest in investing. As a result, Charles River acted up to $ 460 per share in autumn 2021.
Since then, challenges have arisen. Post-Pandemic was withdrawn in pre-clinical research demand. Although this withdrawal was rather normalization, he still reduced the amount of funds that flow in and prompted large pharmaceutical companies to re -evaluate and re -evaluate their pipelines, which Charles River and the sector burdened on the whole. The second challenge was that the current headlines from the US Food and Drug Administration and current administration were related to the future of animal experiments. Charles River's business is partly based on tage tests, and this dynamic deviated the share price. Due to these factors, the company's shares in the last 1, 3- and 5-year period have dropped by 50.95%, 52.30% and 19.66%.
In the middle of this headwind, the Elliott Investment Management has completed a cooperation agreement with Charles River in accordance with the company, with which the company was able to serve four directors after the annual conference of 2025 on May 20, including Steven Barg, the global director of the engagement at Elliott. In addition, the company agreed to initiate a strategic review. This is an exceptionally high quality business, and as a result there are numerous ways to the shareholder value. The first does not include operations, capital allocation, governance or another direct function of Charles River: It is a simple reconciliation of value. The market has probably overreacted the company's challenges, especially with regard to uncertainty in animal experiments. While the exam of the industry is real, it has been real for decades. But despite the headlines that imply, this transition from tage tests does not take place overnight, but a gradual process for decades. Charles River was not only aware of this shift, but was also at the top of the development of alternative methods. In the past 10 years, the number of basic mice that Charles River used in tests has been cut in half. Since Charles River remains the one-stop shop of the preclinical research and leads to both animal-based and alternative solutions, this should not have the effects on you that the latest market reactions have suggested.
In addition to this natural recovery, there are many ways to create a value through the strategic review process, which appears a focus for Elliott in view of the concept of settlement. First, an evaluation of the business solving business. This segment is a hidden jewel: an exceptionally high -quality business with low capital intensity, which has increased by over 10% per year for 20 years. However, it differs from the preclinical core business because it is primarily exposed to commercial production. While a consistently strong capital was out of focus for Charles River and the market, production solutions were blurred. This is exactly the kind of companies that want to acquire larger biosciences such as Thermo Fisher, Denna and KGA and could achieve at least one transaction of several in the tall teenagers, but could probably be north of 20 times before interest, taxes, depreciation and amortization, in view of the physical costs and the commercial synergies for a strategic purchaser. Sales at these levels would mean an assessment for the production of solutions in approximately half of the current market capitalization of Charles River, although only 20% of the company's merits are. If there was a sale of manufacturing solutions, it would leave the preclinical core business, which is in the early innovations of natural relaxation and remains the clear market leader. A sale of manufacturing solutions on these levels would imply an evaluation of approximately 5 times for the remaining business, which should eventually resume higher peer multipliers. The proceeds from the sale could then be used to continue buying shares at these levels and potential investments in the core business.
This brings us to the second opportunity to create value through a strategic review: acquisition of smaller competitors. In the past, management has done a great job in carrying out added value-ketics M & a, for example the acquisitions of Explora Biolabs and Chantest. In addition, the fact that barg goes into the board is an indicator for us that strategic acquisitions are examined. Elliott does not use one of his headmaster in committees, unless the company believes that he or she has a relevant skills that an independent candidate does not have. While Barg has various skills and experiences, including the representation of the board of directors at pharmaceutical companies such as Cardinal Health and Catalent, access to him and the Elliott team to evaluate potential acquisitions with the eye on the shareholder value is one of the greatest advantages of a hedge finder investor on the board.
After all, the board could explore the sale of the entire company. This is probably not the main goal, but in view of the quality and strategic value of the company, it should not be excluded. There is probably no single company that is more important for drug development than Charles River, which have worked with every large pharmaceutical company and almost every large biotech company in over 80% of the new medication that has been approved by the FDA in the past five years. This reach and control make Charles River an extremely valuable strategic capital. In addition, the high cash flow generation and the company's depreciated share price also makes potential financial employeds attractive. As we have already seen, one of these financial acquirers could be Elliott. The company is already the company's largest shareholder with at least 12.5% ​​economic property and has a private equity arm that has already acquired such companies. In fact, Elliott bought together with the Capital and Veritas Capital Syneos Health in 2023. This is not a main thesis for her, but it is a powerful and enviable instrument for an activist who has the ability to acquire the company unless changes in the public market are made.
Ken Squire is the founder and president of 13D monitor, an institutional research service for shareholders, and the founder and portfolio manager of the 13D Activist Fund, an investment fund that invests in an activist 13D investment.