UK-based Shire and Baxalta have announced that the boards of directors of both companies have reached an agreement under which Shire will combine with Baxalta
UK-listed Shire said on Monday that it would pay £31.34 ($45.57) a share for Baxalta and urged its shareholders to push for the deal.
Under the agreement, Baxalta shareholders will receive £12.38 ($18) in cash and 0.1482 Shire ADS per Baxalta share.
Based on Shire’s closing ADS price on January 8, 2016, this equates to £22bn ($32bn) in total and will provide Baxalta shareholders with approximately 34% ownership.
The final deal, increased with a large cash element, is the latest takeover in the pharmaceuticals industry as companies with older drugs seek to acquire the next generation of profitable medicines reported The Guardian.
John Lyon, of Warwick Business School and founder of Photopharmica, said: "The deal is hardly a surprise. Last year Shire sought a deal as a stock purchase and were rebuffed.
“In the courting process, they put forward an improved offer with a 40% cash component, increasing the value from $45 per share to $48 per share.
"Shire did not have a smooth year during 2015 when the US Food and Drug Administration rejected the company's application for a 'dry eye' indication, where further clinical trial data was demanded."
Baxalta split from Baxter, the US medical group last year and was initially concerned that accepting a cash offer too soon after being spun off could violate US rules designed to prevent spinoffs from being used to dodge taxes.
The deal, if completed, would mark the biggest acquisition yet by Dublin-based Shire and place the combined group on the cusp of the world’s top 20 drugmakers according to The Financial Times.
Lyon said: "It is always good to see deals that make good strategic sense and this is one of them. Shire has set out its future as a global leader in rare diseases and this deal augments that strategy with Baxalta - another specialist in rare diseases - having expertise in bleeding disorders, immunology and oncology.
Shire chief executive officer, Flemming Ornskov, said: “This proposed combination allows us to realise our vision of building the leading biotechnology company focused on rare diseases.
“Together, we will have leadership positions in multiple, high-value franchises and become the clear partner of choice in rare diseases.
“Our expanded portfolio and presence in more than 100 countries will drive our growth to over $20bn (£13.7bn) in anticipated annual revenues by 2020. Our due diligence has reinforced our belief in the combination, and we look forward to welcoming Baxalta colleagues to a shared entrepreneurial, patient-driven culture.”
Shire / Baxalta, Cavendish view: ‘As with previous headline deals in big pharma, tax status has proved a focal point, as the major players juggle jurisdictions while striving to remain on the right side of regulators in order to keep a lid on costs – successfully in this case as Baxalta’s effective tax rate will be significantly slashed thanks to the deal.’
Joe Stelzer, managing partner at Cavendish Corporate Finance, said: "Investors will be relieved that the protracted negotiations to bind Shire and Baxalta are finally at an end.
"As with previous headline deals in big pharma, tax status has proved a focal point, as the major players juggle jurisdictions while striving to remain on the right side of regulators in order to keep a lid on costs – successfully in this case, as Baxalta’s effective tax rate will be significantly slashed thanks to the deal.
"The bigger picture for Shire is the need to diversify away from an uneven pipeline of products towards a new emphasis on rare diseases and biotech – the modus operandi being the frenetic pace of acquisitions that has become commonplace across global big pharma.
"Hot on the heels of its $6bn (£4bn) Dyax acquisition, this mega-deal will add Baxalta’s treatments for rare blood conditions, cancers and immune system disorders to what has emerged as a world leading rare diseases platform.
"The Shire / Baxalta agreement sets the tone for a busy 2016 following the explosion in M&A activity last year, led of course by the unprecedented $160bn (£11bn) Pfizer / Allergan tie-up."