Investor opposition led firm to pull the plug on merger despite board support.

CRO Charles River Laboratories is bowing to investor opposition by pulling out of its proposed $1.6 billion acquisition of rival firm WuXi PharmaTech. Severing the deal means Charles River will have to pay WuXi $30 million in break-up fees, but the company said it was not willing to go ahead with the merger without full investor support. The Charles River board has now authorized a $500 million stock repurchase plan.

Pulling out of the deal was the only option given the concerns of major shareholders, states James C. Foster, Charles River chairman, president and CEO. However, he adds, “we believed that this transaction, which would have created the premier early-stage contract research organization, would have resulted in long-term strategic benefits for our business and our shareholders.”

Charles River claims that the acquisition of WuXi would have given it an immediate presence in China, bolstered its discovery and early development expertise, and created a combined entity capable of offering fully integrated research and drug development services from molecule creation to first-in-human testing.

The firm maintains ditching the merger has not changed its overall strategy, though. It plans to strengthen its existing capabilities in discovery services and early development . “We will enhance our portfolio of essential products and services, deepen our scientific expertise, and maintain our standards of exceptional client service,” Foster stresses. “The board’s action to authorize a new stock repurchase plan at this time reflects both its belief that our stock price is substantially undervalued and also its faith in Charles River’s future prospects. Repurchasing our stock is another means of enhancing earnings growth and improving stockholder value.”

The firm has cancelled a prior $600 million stock repurchase authorization, under which there was a remaining balance of some $145 million.

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