January 4, 2016
By Mark Terry, BioSpace.com Breaking News Staff
If Dublin-based Shire PLC goes through with its rumored acquisition of Deerfield, Ill.-based Baxalta, Inc. , it would indicate that the biopharma merger-and-acquisition frenzy started in 2014 and exploded in 2015, is still ongoing.
BloombergBusiness reported yesterday that Shire and Baxalta merger talks are in advanced stages and there is a possible $32 billion deal in the making.
This entire saga started in July 2015, when Shire approached Baxalta about an acquisition. Baxalta had 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.
Since then, Shire has made several attempts to improve the bid. Baxalta’s management has argued that Shire’s bids undervalue the company, and that it would be too disruptive so soon after the spinoff.
Baxalta has a market cap of $22.7 billion and would complement Shire’s portfolio of rare and orphan disease drugs. The combined companies would have sales of about $20 billion by 2020, with a projected annual sales growth in the double digits. Baxalta alone has plans to launch 20 drugs by 2020 that would have a projected combined sales greater than $2.5 billion.
Apparently, despite all the ups and downs, the two companies are closer to a deal than ever. Discussions are revolving around a deal for $32 billion in cash and stock, minus debt, according to Bloomberg’s reporting. A deal could happen as early as this week, although it’s possible the whole thing will fall apart. Pricing per share being discussed is about $46.50 to $48.
The earlier bids were all-stock due to the terms of the Baxter spinoff—a cash deal was believed to incur a tax penalty for Shire. However, more recently, after conferring with attorneys, Shire believes it could bring in cash without taking a huge tax bite on the deal.
There has also been indications that as part of Baxalta’s charter, there is a co-called “poison pill” clause. This clause means that if Shire were to begin buying up Baxalta shares, when it hits 10 percent, Baxalta would be able to offer additional shares to existing investors at half the price.
Ronny Gal, an analyst with Bernstein, noted in December that a deal between the two companies might run as high as $52 per share with 30 percent in cash. That would give Baxalta a value of about $35 billion.
There have also been suggestions that Baxalta is sending out feelers to other potential buyers, including Paris-based Sanofi or Chicago-based AbbVie Inc. . However, Dublin’s low tax rate would have an advantage over the French and American companies.
Shire has indicated that a Baxalta-Shire merged company would have an effective tax rate of 16 to 17 percent. Baxalta’s projected tax rate for 2016 is 23 percent.
That said, analysts think there are unlikely to be better offers than the one being made by Shire.
In February 2015, Shire acquired NPS Pharmaceuticals for $5.2 billion. Shortly after it acquired Meritage Pharma for up to $245 million. And in June, Shire was believed to have made a bid for Actelion Ltd. for $18.9 billion, but was turned down. It then went on to acquire Dyax Corporation for $5.9 billion in November. In August Shire bought Foresight Biotherapeutics for $300 million.
