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August 4, 2015

UPDATE: Shire Offers $30B for Baxalta

  • Shire said today it has made an unsolicited $30 billion all-stock offer for Baxalta, the global biopharmaceutical business spun off from Baxter International last month.

    Both companies had 2014 revenues of approximately $6 billion. Shire asserted that the combined company would be the leading biopharma focused on rare diseases, with a projected $20 billion in product sales by 2020—as well as more than 30 new product launches planned by then, with approximately $5 billion incremental sales potential.

    The combined company would also see double-digit revenue growth and an internal rate of return “in excess of 10%,” Shire said in a statement.

    “This is for us a part of our stated strategy for the last two and a half years that we want to become the leader in rare diseases. This is a perfect strategic fit, highly complementary, very attractive financially, double-digit sales and earnings growth,” Shire CEO Flemming Ornskov, M.D., said this morning during a conference call with analysts to discuss the offer. “When you get to this size of a company, to also have double-digit revenue growth, I think, is pretty impressive.”

    “I’m sure that once we combine the two companies, there could be additional opportunities,” Dr. Ornskov added.

    Baxalta has rejected the proposal.

    “On July 31st, weeks after receiving our written proposal and without any meaningful interaction, you stated that you had concluded it was not a basis for discussions. As a result, you have left us with no choice but to make our proposal known to your shareholders. We believe they deserve an opportunity to consider it,” Dr. Ornskov wrote to Baxalta President and CEO Ludwig N. Hantson, Ph.D., in a letter dated today.

    In a statement this afternoon, Baxalta noted that it received the proposal privately on July 10, and that its board unanimously determined that Shire's offer was not in the best interests of Baxalta or its shareholders, after "carefully" reviewing the proposal in consultation with its financial and legal advisors.

    "Our board strongly believes that Baxalta’s independent global infrastructure and world-class manufacturing operations will provide an excellent platform to grow value for our shareholders," Dr. Hantson replied in a letter to Dr. Ornskov dated July 31 and made public today by Baxalta.

    "As a new, publicly-traded entity only since July 1, we are just in the initial stages of implementing our growth strategy as a standalone company and our stock has not yet achieved a price level that appropriately reflects the company’s value and prospects.  A transaction at the exchange ratio you proposed significantly understates Baxalta’s true value," Dr. Hantson wrote. "Moreover, we do not believe that a combination of our two companies would be strategically complementary, or that our respective product portfolios would benefit from such a combination."

    Shire asserts that a combination would enable the companies to better capitalize on multiple $1 billion-plus rare disease franchises with substantial barriers to entry, as well as complementary expertise in rare diseases R&D, commercial, and manufacturing, supported by global scale and infrastructure.

    Last year Shire had a single billion-dollar-plus drug—Vyvanse®, indicated for attention deficit hyperactivity disorder (ADHD) and moderate to severe binge eating disorder. Vyvanse generated $1.449 billion in 2014 net product sales, up 18% from 2013, accounting for 24% of Shire’s total revenue.

    Vyvanse net product sales jumped another 18% in the first six months of this year compared with January–June 2014, to $841.6 million, accounting for 28% of total Shire revenue, according to results released July 23.

    Shire and Dr. Ornskov said the companies could achieve “significant” potential for cost-cutting or operating synergy, but would not offer details pending a potential future due-diligence review of Baxalta. He did say, however, that the combined company could save a significant sum on taxes by being taxed at a rate of 16% to 17%--compared to Baxalta’s latest-reported 23% tax rate—since Shire is domiciled in Ireland, unlike the U.S.-domiciled Baxalta.

    Baxalta shareholders would own approximately 37% of the combined company, Shire said. Under the proposed deal, Baxalta shareholders would receive 0.1687 Shire American depositary receipts for each Baxalta share.

    At $45.23 per Baxalta share, Shire said its proposal represents a 36% premium over Baxalta’s stock price as of Monday.

    Soon after the close of an acquisition, Shire plans to launch a share buy-back program to repurchase, within two years, up to 13% of the combined shares outstanding. The buyback is expected to enhance earnings accretion while maintaining financial flexibility and an investment-grade credit profile, Shire said.

    Shire expects the deal to be break-even with non-GAAP earnings per share in the first year after the deal, then add to earnings in the second year and thereafter.

    “We’re not going to provide a year-by-year specific forecast at this point. We feel that’s premature in advance of due diligence,” Shire CFO Jeff Poulton said on the conference call.

    Shire employs about 6,000 people worldwide. While headquartered in Dublin, Shire has much of its operations in the U.S., where it announced plans last year to move its U.S. headquarters from Chesterbrook, PA (Wayne, PA address), to Lexington, MA, as part of its ‘One Shire’ global restructuring program.

    Also last year, AbbVie pursued an acquisition of Shire, but called off the planned merger after the U.S. Department of the Treasury said it would issue new rules designed to limit the economic benefits of so-called “inversion” transactions, in which the combined company redomiciles from the U.S. to a country with lower corporate taxes.

    Formerly the Baxter BioScience global biopharmaceutical business of Baxter International, Baxalta employs 16,000 people worldwide, and is headquartered in Deerfield, IL—the headquarters city of its predecessor Baxter—with a Global Innovation and R&D Center set to formally open later this year in Cambridge, MA.

    [This report has been updated to include comment from Baxalta.]

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