By Liz Hoffman And Denise Roland
Shire PLC on Tuesday made public an unsolicited $30.6 billion
takeover bid for rare-disease treatment maker Baxalta Inc.,
becoming the latest deal-hungry company refusing to take "no" for
an answer amid the current deal boom.
The proposed tie-up pushes unsolicited U.S. takeover bids to a
multiyear high by value, as emboldened chief executives pursue
reluctant suitors despite the risks and distractions that typically
ensue with large public takeover battles.
Dublin-based Shire itself is emblematic of the tumult, having
played all the parts. Last year it was a reluctant target,
eventually won over by Illinois-based AbbVie Inc. in a $54 billion
deal. But AbbVie backed away after a change in U.S. tax rules for
overseas takeovers, and the deal collapsed. Now, Shire is looking
for its largest acquisition yet as the company's drugmaking peers
also merge.
"As sectors like health care continue to consolidate and prime
acquisition targets are quickly being acquired, companies are
feeling pressured to be more aggressive and making unsolicited
bids, even if it becomes a messy fight," said Frank Aquila, a
mergers-and-acquisitions lawyer at Sullivan & Cromwell LLP.
Buyers have gone public with $383 billion in unsolicited
takeover offers this year, according to Dealogic, on track to
approach 2007's record of $818 billion. One in five dollars
committed to U.S. takeovers this year has been uninvited, slightly
ahead of last year and double the rate two years ago.
Pharmaceutical companies have driven the trend, with midsize and
larger players lobbing multibillion-dollar acquisition campaigns at
a record clip. But unsolicited bids have crossed sectors, including
for pesticide maker Syngenta AG, pipeline operator Williams Cos.
and insurer Cigna Corp., which eventually agreed to a friendly deal
with Anthem Inc.
Going public with a spurned bid is an old
mergers-and-acquisitions play, designed to egg on shareholders to
pressure potential sellers. Spurning the bid can also be a
negotiating tactic, aimed at extracting a higher price.
Shire waited less than a week after Baxalta's board rejected the
offer to go public with its takeover bid, according to letters it
released.
Shire Chief Executive Flemming Ornskov on Tuesday called the
prospective tie-up a "compelling combination," and urged Baxalta's
board, which last month rebuffed a private approach, to engage in
talks.
Baxalta Chief Executive Ludwig Hantson said that Shire's bid
"significantly understates" the company's value and would be
"severely disruptive to our young organization," according to a
July 31 letter to Dr. Ornskov that was released Tuesday.
Deerfield, Ill.-based Baxalta, whose drugs treat rare bleeding
disorders and immune deficiencies, has been a public company for
just five weeks, having spun out last month from Baxter
International Inc., which remains its largest shareholder.
Shire is offering Baxalta holders 0.1687 Shire American
depositary share for each Baxalta share held, implying a value of
$45.23 per Baxalta share and a premium of 36% based on Monday's
closing share price.
Shares in Baxalta rose 12% to close at $37.10 on Tuesday, while
Shire's shares listed in New York declined 5.4% to $253.60,
possibly reflecting investor concerns the deal will take too long
to add to Shire's earnings. Baxter shares added 2% to $40.31,
reflecting the boost in value of the Baxalta shares it holds.
After the failed AbbVie deal, Shire has refashioned itself as a
biotech company, with a focus on treatments for diseases that
strike relatively few patients. Those drugs can receive
fast-tracked regulatory approval and command high prices from
insurers.
"It's a very attractive market whatever way you look at it, in
terms of innovation, business model, future growth opportunities,"
Dr. Ornskov said Tuesday.
In February, Shire completed its $5.2 billion purchase of NPS
Pharmaceuticals Inc. It also bid for gastrointestinal drug maker
Salix Pharmaceuticals Ltd. earlier this year, according to people
familiar with the matter, but lost out to Valeant Pharmaceuticals
International Inc.
Buying Baxalta would add hemophilia, immunology and cancer drugs
to its portfolio. The merged company would be the 19th-largest
pharmaceutical company by sales, leapfrogging Celgene Corp., Biogen
Inc. and others, according to market-research firm
EvaluatePharma.
Shire said the combined company could deliver $20 billion in
product sales by 2020. It expects a deal would boost profit
starting in the second year after the transaction closes.
A deal is far from assured. Baxalta has a so-called poison pill
defense that limits any unwanted suitors to a stake of 9.9%. Its
directors also serve three-year, overlapping terms, meaning it
would take Shire two years to gain control through board seats.
Moreover, Baxalta shareholders have no ability to call special
meetings, which could have provided an end-run around otherwise
tight defenses.
One factor is whether Baxter, which remains Baxalta's biggest
shareholder with a 19.5% stake, is inclined to sell--and at what
price. Baxter has said it is open to selling its Baxalta shares,
but hasn't offered details about its expectations on price and
timing.
Baxalta's spinoff came as big drug companies were focusing on
core operations. Abbott Laboratories did a similar spinoff of its
biotech operations in 2013, resulting in AbbVie. GlaxoSmithKline
PLC, Novartis AG and Eli Lilly & Co. struck large asset swaps
last year to double down on areas of strength.
Baxalta began trading July 1, and Dr. Ornskov said he first
approached it the next day. That timing is important because, had
Shire held talks with Baxter before the spinoff, any acquisition of
the company now could trigger heavy taxes for Baxter. Baxalta is
required to reimburse its former parent should that happen,
according to separation agreements.
Taxes would be one area of savings for the combined company, as
corporate taxes in Ireland are generally lower than in the U.S.
Shire, which has a tax rate in the midteens, is projecting a tax
rate of 16% to 17% for the combined company, compared with
Baxalta's current rate of about 23%.
Foreign companies have been snapping up U.S. firms at a rapid
clip, particularly in the pharmaceuticals sector. Applying their
lower tax rates to profits of companies in the U.S., where the
statutory federal corporate tax rate is 35%, can yield extra
savings on top of those traditionally wrung from mergers, enabling
overseas buyers to afford a higher price and to boost their own
rates of return.
Dr. Ornskov called tax savings "just one part, not the main
part" of the deal's rationale.
Write to Liz Hoffman at liz.hoffman@wsj.com and Denise Roland at
Denise.Roland@wsj.com
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