August 5, 2015
By Mark Terry, BioSpace.com Breaking News Staff
After Dublin-based Shire publicly announced its intentions of buying Illinois-based Baxalta yesterday in an attempt to convince shareholders to pressure management into considering the deal, analysts are speculating on what a merged Shire and Baxalta would look like.
On July 10, 2015, Shire approached Baxalta with a stock-only deal worth almost $31 billion. Shire offered to buy all available stock for $45.23 per share, about 36 percent higher than its value on Aug. 3, 2015. Baxalta was only about one-month old, after being spun off from Baxter International on July 1, 2015.
The deal offer is all stock because of regulations related to the Baxalta spinoff that would incur taxes because the Baxalta split didn’t involve taxes. What analysts point out is that if Shire or a competitive bidder wanted to improve on the deal by throwing in cash, they probably couldn’t without a tax penalty.
Ludwig Hantson, president and chief executive officer of Baxalta, apparently refused to engage on the offer. In a clear effort to pressure Baxalta’s board of directors and shareholders into considering the deal, Shire went public with the offer and hosted a question-and-answer session with analysts.
Now analysts have had time to think over the potential merger and consider what the merged companies would look like. Upon immediate closure, it would have more than 21,000 employees globally and 20 drugs on the market for cancer, blood diseases and rare diseases. Shire has projected that if merged, within five years the companies would have 50 drugs on the market and $20 billion in revenues.
Of the three primary areas of cost savings presented by Shire, lower taxes caught everybody’s attention — lower taxes, because Shire is domiciled in the U.K., with a corporate tax rate of about 16 or 17 percent compared to the U.S. rate of about 24 percent.
“I don’t think that taxes are a particularly strong thing that we’re emphasizing here,” said Fleming Oernskov, chief executive officer of Shire in yesterday’s analysts call. “Tax is just one part, but not the main part.”
Instead, he focused on strategy. “Here you have two companies that are basically carbon copies of each other in terms of strategy,” he said, “so why not join together?”
Baxalta responded with a press release yesterday. “The Board today reaffirmed its conclusion that Shire’s proposal significantly undervalues Baxalta and its attractive prospects for growth and value creation,” said Wayne Hockmeyer, chairman of the board of Baxalta in a statement, “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.”
Baxalta also provided the contents of a letter from Hantson to Oernskov, which, in part, stated, “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. And we do not think the combination would generate substantial operational or revenue synergies, which would be critical to any potential value creation for our shareholders. Perhaps even more importantly, a transaction at this time would be severely disruptive to our young organization and the implementation of a wide variety of critical commercial, R&D, and operational initiatives and thus carries with it significant risks for our shareholders.”
According to Bloomberg Business, analysts have forecasted that Baxalta shares might trade for about $36 next year, only about 16 percent higher than on its first day of trading.
It’s also important to note that Shire has not performed its due diligence yet, which suggests that any final deal, if it gets that far, may look quite different than this initial bid.
“It was quite a quick bid,” said Jonathan Morgan, an analyst for The Edge, to Bloomberg Business. “We think there’s going to be a little bit of back and forth, and we’ll have to see how this plays out.”
At the moment, seems mixed. It currently is trading for $37.21, down from yesterday’s high of $39.18.
traded for $268.08 on Monday then dropped to $247.39 yesterday, but has recovered some and is currently trading for $253.60.
