January 8, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Investors and analysts wait impatiently for an announcement expected as early as Monday that a Dublin-based Shire merger with Deerfield, Ill.-based Baxalta is a done deal.
Back 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.
When that didn’t work, Shire upped the ante, which hasn’t ended in a deal, but over time has gotten the two companies talking. Baxalta executives argued that the original Shire offer undervalued the company and it would be too disruptive so soon after the Baxter spinoff.
Rumors have been growing louder, based apparently on unidentified insiders, that the two companies are now close to a deal for about $32.5 billion in a mix of cash and stock. According to those sources, the deal would value Baxalta at about $48 per share, which the cash part of that slightly under $20 per share.
Early bids were all stock because of terms associated with the Baxter spinoff. Any cash was believed to incur a tax penalty for Shire. However, after conferring with experts, Shire apparently feels that the deal could be structured in a way that won’t cause a big tax bite.
That appears to be the possible sticking point, as reported by The Financial Times, writing, “Negotiations have been progressing, the people said, but Shire is still seeking assurances that the tax-free status of Baxalta’s spin-off last year from Baxter, the U.S. medical group, would not be jeopardized by a cash payment. … Shire has since been persuaded that it would be possible to add cash to its all-share offer without creating a tax liability—but it is still working with advisers to secure a firm legal opinion on the matter before pressing ahead.”
Baxter still owns 20 percent of Baxalta. That company held an indemnity from Baxalta against taxes should a deal like the Shire one came up, and this was believed to push the tax burden onto the acquiring company. The sources warn that the deal, which has warmed up over the last few weeks, could still fall apart if the tax problems can’t be solved.
Baxalta , which has been going strong since September 2015, is still on its way up from the news. Shares traded for $40.35 on Aug. 17, 2015, dropped to $30.77 on Oct. 13, then churned upward steadily to $41.51 on Jan. 5, 2016. Shares are currently trading for $40.52.
Matt Miksic, an analyst with UBS, published a research note Monday suggesting that Baxalta stock was a good investment whether the Shire deal went through or not. “Since declining to engage Shire on its initial offer in August, the company has beat third quarter estimates, raising guidance for 2015, guided to an above-consensus outlook for 2016 and obtained two key new pipeline approvals (Adynovate and Vonvendi).”
Shire , however, has been volatile and steeply down from its Aug. 3, 2015 high of $268.08. Shares traded for $196.86 on Oct. 13, rose to $231.08 on Oct. 28, but are currently trading for $186.73.
The Street wrote on Wednesday, “We rate Shire Plc as a Buy with a ratings score of B. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance than most stocks we cover. The company’s strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures and expanding profit margins.”
