August 14, 2015
By Mark Terry, BioSpace.com Breaking News Staff
The recent attempt by Dublin-based Shire to acquire Deerfield, Ill.-based Baxalta has reportedly taken another turn as Shire admits it may be able to offer more and wants a peek at Baxalta’s books, and Baxalta provides clues to its growth plans.
On July 10, 2015, Shire offered to acquire Baxalta in an all-cash transaction of about $45.23 per Baxalta share, a total of about $31 billion. Baxalta is a new company, having spun off from Baxter International on July 1, 2015.
Arguing that Baxalta was not being responsive, Shire forced the issue by going public with its offer. As Flemming Ornskov, chief executive officer of Shire wrote in a letter to Ludwig Hantson, president and chief executive officer of Baxalta, “On July 31, 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.”
In a press release on Aug. 4, Wayne Hockmeyer, chairman of the Baxalta board, wrote, “The Board today reaffirmed its conclusion that Shire’s proposal significantly undervalues Baxalta and its attractive prospects for growth and value creation, and that a merger at this time would be severely disruptive at this very early stage of Baxalta’s existence as a public company and presents a significant and real risk to value creation for our shareholders.”
Apparently Shire and at least some analysts have focused on the first half of the statement and not the concerns over disruption of a new company. An undisclosed source at Shire reported to Reuters that Shire might come back with a higher offer. “Now the funnel is closing in on value,” the source said to Reuters. “There is a threshold where a deal doesn’t make sense for Shire. We’re not in that zone at the moment.”
According to a Bloomberg report, Shire wanted more details about Baxalta’s revised outlook before it ups the ante on the deal. In short, now that everything is out in the open, Shire intends to do its due diligence to make sure it’s really worth their while.
During a web conference call on Aug. 4, Ornskov did say, “We have tried to engage with the management and executives, we think we have an attractive deal, but we would like to sit down with them and do our due diligence and discuss the advantages of a merger.”
Earlier this week, in response to the pressure being applied by Shire, Baxalta’s Hantson provided details regarding the company’s growth plan for the next six to 12 months, emphasizing that the Shire offer undervalued the company. “Shire opportunistically showed up a handful of days after we began trading as a new, independent company and then went public with its offer without warning,” he said in an investors call hosted by Cowen and Company He went on to say that the board rejected the deal in July and then last week, saying the bid “does not reflect full and fair value for our shareholders.”
According to Hantson, Baxalta plans to launch 20 new drugs by 2020, projecting combined sales exceeding $2.5 billion.
Analyst Ken Cacciatore, with Cowen & Co., said in a research report Monday, that the proposed acquisition seemed “value-creating and appropriately aggressive.” However, it seemed possible, he went on, that Baxalta had “sufficient defenses that could be enacted if the Baxalta management … does not want to consider the offer.”
That has led some to question the possibility of a hostile takeover. At the Aug. 4 conference call, Ornskov seemed to dodge the question, instead focusing on engaging with the Baxalta executives and board. In a research note, Asthika Goonewardene of Bloomberg Industries wrote, “Hostile bids typically come with a premium to entice shareholders,” so Shire’s offer suggests it may concede that Baxalta is a lower-quality asset.”
One of Shire’s biggest investors, Royal London Asset Management, supports the deal as long as it stays below $50 per share. Talks are expected to continue for a while, at least, and the undisclosed inside source has indicated Shire will be patient and is willing to spend a few more months trying to get the deal completed.
