After a 6-Month Courtship, Baxalta Finally Says Yes to $32 Billion Shire Marriage Proposal

After a 6-Month Courtship, Baxalta Finally Says Yes to $32B Shire Marriage Proposal
January 11, 2016
By Mark Terry, Breaking News Staff

After a tumultuous courtship, Bannockburn, Ill.-based Baxalta has finally said yes to Dublin-based Shire ’s merger proposal.

In July 2015, Shire approached Baxalta about an acquisition. Baxalta had just spun off from Baxter International on July 1, 2015. Baxalta declined the offer. In early August, Shire went public with the offer in hopes of pressuring the Baxalta board and shareholders into considering the deal.

Shire made several attempts to sweeten the deal, but Baxalta’s management argued that the bids undervalued the company and that so soon after the spinoff a merger would be disruptive. But Shire continued to woo the U.S. company, which will benefit from Ireland’s lower corporate tax rate.

Baxalta shareholders will receive $18 in cash for each share and 0.1482 of Shire’s American depositary receipts. Earlier offers were for about $30 billion all in stock. Because of the nature of the Baxter spinoff, it was thought that a cash deal would involve a significant tax penalty for Shire. However, after due diligence, the company apparently found a way around that. The current deal is valued at around $32 billion.

“This proposed combination allows us to realize our vision of building the leading biotechnology company focused on rare diseases,” said Flemming Ornskov, Shire’s chief executive officer, in a statement. “Together, we will have leadership positions in multiple, high-value franchises and become the clear partner of choice in rare diseases. Our expanded portfolio and presence in more than 100 countries will drive our growth to over $20 billion in anticipated annual revenues by 2020. Our due diligence has reinforced our belief in the combination, and we look forward to welcoming Baxalta colleagues to a shared entrepreneurial, patient-driven culture.”

The merged companies will be a leader in so-called orphan drugs and rare diseases. Portfolio products will include Baxalta’s hematology drug, Adynovate, Antihemophilic Factor (Recombinant), PEGylated, to treat hemophilia A, and Hyqvia, a next-generation subcutaneous immunoglobulin (IG) product to treat patients with primary immunodeficiency. Shire's top drug is Vyvanse, for the treatment of attention deficit hyperactivity disorder (ADHA) and for moderate-to-severe Binge Eating Disorder.

The companies also have a strong presence in lysosomal storage diseases, gastrointestinal and endocrine, HAE, ophthalmics and oncology.

Baxalta’s projected tax rate for 2016 was 23 percent. Once the deal goes through, it will have an effective tax rate of about 16 to 17 percent by 2017. The deal is also projected to save more than $500 million annual in costs.

Shire’s acquisition of Baxalta is only the most recent in several high-profile deals for rare disease companies. In February 2015, Shire bought NPS Pharmaceuticals for $5 billion, and in November 2015, acquired Dyax Inc. for $5.9 billion.

This deal is expected to be completed in mid-2016. Shire took on an $18 billion fully underwritten bank facility to finance the acquisition. It has a one-year life with a one-year extension possible. Shire indicates it plans to refinance the facility through capital market debt issuances in short order.

“Today’s announcement markets a new path forward for our organization and is a testament to the significant progress we have made in achieving our strategic business priorities,” said Ludwig Hantson, Baxalta’s chief executive officer, in a statement. “This transaction presents a unique opportunity for Baxalta shareholders, who will receive substantial immediate value as well as an ongoing stake in a combined global leader in rare diseases with strong growth prospects.”

Shire is currently trading for $186. Baxalta is currently listed at $40.01 per share.

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