After a courtship of more than six months, Shire PLC on Monday won over its fellow drugmaker Baxalta in a deal valued at about US$31 billion. The combination would create a giant in the treatment of rare diseases.
Baxalta, which was spun off from Baxter International, generates a large portion of its sales from Advate, a drug for hemophilia. It also has a portfolio of plasma therapies and treatments for immune diseases.
The company initially rebuffed Shire’s offer last summer, saying it “significantly undervalued” the company.
Shire’s first proposal was an all-stock deal, worth US$30 billion when the companies disclosed their talks in August.
Under the terms of the deal announced on Monday, Shire is to pay US$45.57 in cash and stock for each Baxalta share, or a total of US$31 billion.
That price represents a 37.5 percent premium to Baxalta’s share price before Shire first announced in August that it had made a takeover approach.
Based on the 30-trading-day volume-weighted average of Shire’s stock price, however, the deal is valued at US$47.50 a share, or about US$32 billion.
Part of Shire’s ability to pay such a premium for Baxalta is tax savings.
Because Shire is based in Dublin, while Baxalta is based in Bannockburn, Illinois, outside Chicago, the combined company will be able to achieve a lower tax rate than Baxalta can as a stand-alone.
The combined company would have an estimated tax rate of 16 to 17 percent by next year, compared with Baxalta’s current rate of 23 to 24 percent, Shire said.
Shire said it expected to realize more than US$500 million in annual cost savings within the first three years after the deal closes.
Baxalta has been a stand-alone company for only six months. The drugmaker was spun off from Baxter in July last year to streamline its operations with a focus on specialty drugs.
Baxter, a medical supplies giant, still owns more than 19 percent and remains the largest shareholder, so the deal with Shire is incumbent upon its support.
“Baxter fully supports the proposed combination of Shire and Baxalta, which will create a major biotechnology company and global leader in rare diseases,” Baxter chairman and chief executive Jose Almeida said.
The Baxalta spinoff was structured in a way to avoid creating a tax burden for Baxter shareholders who received shares in the new company.
Preserving the “tax-free status” of the Baxalta spinoff was a key component of the takeover discussions, Shire chief executive Flemming Ornskov told reporters in a conference call on Monday.
He said he was “confident” the current structure of the transaction would accomplish that.
Tax considerations had helped drive a proposed US$54 billion sale of Shire to the US drugmaker AbbVie last year.
After the US Department of the Treasury announced new rules aimed at curbing inversions — when a US company acquires a foreign one to reincorporate overseas to lower its tax bill — AbbVie and Shire terminated their deal.
Shares of Baxalta closed down more than 2 percent, at US$39.10 on Monday, while Shire shares closed down more than 8 percent in London trading.
“This proposed combination allows us to realize our vision of building the leading biotechnology company focused on rare diseases,” Ornskov said in a news release.
The combined company could generate more than US$20 billion in sales by 2020, with rare disease treatments accounting for 65 percent of its annual revenue, Shire said in a news release.
The companies currently have about US$13 billion in combined sales, according to Shire.
The Baxalta transaction is expected to close by the middle of this year and is subject to shareholder and regulatory approval.
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