Daily Management Review

Following a Six Month Pursuit Drugmaker Shire wins Baxalta for $32 billion


After an agreed $32 billion cash and stock offer, catapulting it to a leading position in treating rare diseases, drug maker Shire Plc clinched its six-month pursuit of Baxalta International Inc on Monday.
After adding a cash sweetener, the U.S. firm that makes medicines and treatments for rare blood conditions, cancers and immune system disorders was won over by the London-listed group after having first approached the US firm with an all-stock offer in July.
In 2015, the global healthcare industry had its biggest deal-making streak in history and the deal marks a strong start to mergers and acquisitions in the sector in 2016. In 2015 the global mergers and acquisitions in the sector totaled $673 billion, according to Thomson Reuters data.
The merger also exemplifies how drug companies try to use the medicines for rare diseases and targeting small groups of patients for which drug companies can charge prices running into hundreds of thousands of dollars a year.

"Together we will have the number one platform in rare diseases with a strong foundation for future growth," Shire Chief Executive Officer Flemming Ornskov told reporters.
With an implied total value of $45.57 per share based on Jan. 8 prices, shareholders will receive $18 in cash and 0.1482 Shire American depositary shares per Baxalta share.
The price is 37.5 percent above Baxalta's price on Aug. 3, beforeShire went public with its interest.
The previous bid of $30 billion all-stock offer in August by Shire was rejected by Bannockburn Illinois-based Baxalta which was spun off last year from Baxter International. The argument for the rejection was that the offer had significantly undervalued the company.
However by meeting with Baxalta's major shareholders over a period of months, Ornskov relentlessly pursued Baxalta and sought to pressure it into agreeing to a deal.
These measures helped it to avoid the complexities of a hostile deal that would have included a "poison pill" that stopped unwanted suitors from buying more than 10 percent of the company and created a hard-to-replace board.
Due to the nervousness over the price offered Shire prices fell by 4 % while the shares in Baxalta rose just under 2 percent to $40.70 in early New York trade on confirmation of the deal.
Due to concerns a cash element might jeopardize the tax-free status of Baxalta's spin-off from Baxter, Shire had initially offered only stock for the deal. The tax free status would be able to be maintained said a confident Ornskov.
The companies together expected to deliver double-digit sales growth with more than $20 billion in annual revenues by 2020, the companies said.
Shire said it expected the transaction to boost non-GAAP diluted earnings from 2017 with annual operating cost synergies of over $500 million, additional revenue synergies and tax benefits from Shire's Irish domicile.
Even as the merger brings a strong position in haemophilia treatments to Shire from Baxalta, the business also faces challenges due to Roche Holding AG is developing a promising haemophilia antibody.
Baxalta could actually dilute Shire earnings from 2019 to 2023 before being accretive again from 2024 due to the threat from Roche's product ACE910, said UBS analysts.


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