Shire PLC’s six-month pursuit of peer Baxalta Inc. took a big step forward Monday when the pair announced a $32.2 billion tie-up, in one of the few ever cash-and-stock deals involving a company recently separated from its parent in a tax-free spin.
Dublin-based Shire has agreed to pay $18 in cash plus 0.1482 of its American depository shares per share in the Deerfield, Ill.-based company, which spun out from parent Baxter International Inc. in July. That implies a valuation of $45.57 per share based on Shire’s closing share price on Friday, or $47.50 per share using Shire’s weighted average price over the 30 trading days ended Friday, Shire said.
The pair signed off on the deal after overcoming fears the tie-up could run afoul of U.S. laws that prohibit tax-free spins from being used as a “device” to funnel cash to shareholders. Shire said it had concluded that the structure of the deal would maintain the tax-free status of the Baxalta spinoff after “additional tax due diligence.”
Shire said the tie-up would generate annual cost savings of more than $500 million within the first three years of the deal closing. It added that the combined company would have an effective tax rate of 16-17% by 2017, lower than Baxalta’s current rate of 23.5%.
Shire said the deal would create the largest maker of rare disease drugs in the world. It also would catapult the two midsize companies into the same league as Bristol-Myers Squibb Co., according to data from EvaluatePharma, a market intelligence company.
The companies expect the deal to close in mid-2016.
Shire said the enlarged group could deliver $20 billion in product sales by 2020, though some have said the company is taking on a risk with Baxalta, whose large hemophilia franchise faces looming competition from a string of new treatments under development at rival drugmakers. Those include a closely watched product in Roche Holding AG’s pipeline, which has been designated a “breakthrough” drug by America’s Food and Drug Administration.
As well as Baxalta’s hemophilia drugs, Shire would be adding immunology and cancer treatments to its portfolio, which largely comprises drugs for attention deficit hyperactivity disorder, rare diseases and ophthalmic conditions.
The deal also underlines the allure of rare disease drugs, which don’t face the same pricing pressures as treatments for more common ailments as each treatment targets such a small group of patients.
Flemming Ornskov, chief executive of Shire, said the deal “allows us to realize our vision of building the leading biotechnology company focused on rare diseases.”
Shire has secured an $18 billion bank facility to finance the combination. The company intends to refinance the bank facility through capital market debt issuances.
Following the deal, Baxalta shareholders will have a 34% stake in the combined company. The deal’s per-share value of $45.57 represents a premium of 37.5% over Baxalta’s closing share price on Aug. 3, the day before Shire took its interest in the group public.
Baxalta Chairman Wayne T. Hockmeyer will become deputy chairman of the combined company, and two additional directors will be included from Baxalta’s board.
Shares of Baxalta rose 4.3% to $41.74 in premarket trading Monday, while Shire’s ADS slipped 0.9% to $184.25.
Shire’s previous offer for Baxalta, made in August, was entirely in stock and worth $45.23 a share at the time.
By Denise Roland
Source: Wall Street Journal
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