The specialty pharmaceutical company, Shire plc, has made a proposal to acquire Baxalta Incorporated, the newly spun-off biopharmaceutical company from Baxter, in an all-stock transaction valued at approximately $30 billion. Baxalta has thus far rejected the proposal.

Under the deal, Baxalta shareholders would receive, for each Baxalta share, 0.1687 Shire America depositary receipts (Shire is headquartered in Dublin, Ireland). The proposal implies a value of $45.23 per Baxalta share and represents a premium of 36% over Baxalta's stock price as of August 3, 2015. The proposed transaction would be structured as an all-stock transaction to maintain the tax-free nature of Baxalta's July 1, 2015, spinoff from Baxter. Baxalta shareholders would own approximately 37% of the combined Shire group. After the close, Shire would initiate a share buy-back program to repurchase, within two years, up to 13% of the combined post-transaction shares outstanding.

The combined entity is projected to deliver product sales of $20 billion in 2020 with several $1 billion franchises in rare diseases. It would have more than 30 new product launches planned with approximately $5 billion incremental sales potential by 2020.

In commenting on the proposal, Shire Chief Executive Officer Flemming Ornskov said in a company statement: “We believe the proposed combination of Shire and Baxalta would be strategically and financially attractive for both of our companies, accelerating our respective growth ambitions and creating the leading global biotech company in rare diseases. The combined entity would have the opportunity to create significant shareholder value in one of the most attractive and fastest growing segments in healthcare. Together, the companies would be projected to deliver $20 billion in product sales by 2020, with the financial and operational firepower to fuel further innovation and growth in rare diseases. It is our strong preference to immediately enter into a negotiated transaction to explore the full potential of the proposed combination and finalize the terms of an agreement.”

Baxalta acknowledged it received Shire’s proposal privately on July 10, 2015, and in consultation with Baxalta's board of directors and with its financial and legal advisors, reviewed the proposal and determined that it was not in the best interests of Baxalta or its shareholders. “The Board today reaffirmed its conclusion that Shire's proposal significantly undervalues Baxalta and its attractive prospects for growth and value creation, 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,” said Wayne T. Hockmeyer, chairman of the board of Baxalta, in a company statement.

Shire’s move to acquire Baxalta comes after AbbVie terminated a proposed acquisition of Shire for approximately $55 billion in October 2014. The proposed acquisition of Shire involved a tax inversion structure by which the New AbbVie was to become a holding company for the combined AbbVie and Shire and to be incorporated in Jersey, the UK, Shire’s place of incorporation. Through its incorporation in the UK, the AbbVie board expected the transaction to reduce New AbbVie’s effective tax rate to approximately 13% by 2016. A subsequent notice by the US Department of Treasury, however, which signaled a limiting of corporate tax inversions, cast uncertainty as to this practice, so AbbVie decided to terminate the proposed acquisition.

Baxalta Incorporated launched as a separate, independent $6 billion biopharmaceutical company on July 1, 2015. Baxter announced in March 2014 that it was separating into two independent companies, one focused on biopharmaceuticals and a second on medical products. The therapeutic focus of Baxalta is in hematology, immunology, and oncology. Baxalta said it plans to launch 20 new products by 2020. Over the past two years, Baxalta has received seven new approvals and currently has four products under regulatory review across its three areas of focus.

Shire has made several recent bolt-on acquisitions. Earlier this year, it acquired NPS Pharma for $5.2 billion. It also acquired Meritage Pharma, a privately held company, for an upfront fee of $70 million and additional contingent payments based on the achievement of development and regulatory milestones. With the acquisition, Shire acquired the global rights to—and undertaken the further development of—Meritage's Phase III-ready compound, oral budesonide suspension (OBS), a drug for treating adolescents eosinophilic esophagitis (EoE), a rare, chronic inflammatory gastrointestinal (GI) disease. Shire obtained the rights to acquire Meritage in connection with its $4.2 billion acquisition in 2014 of ViroPharma, a company specializing in developing drugs for rare diseases. Also, earlier this month, Shire acquired Foresight Biotherapeutics Inc. for $300 million to add to its eye-care business. With the acquisition, Shire acquired the global rights to FST-100 (topical ophthalmic drops combining 0.6% povidone iodine (PVP-I) and 0.1% dexamethasone), a therapy in late-stage development for treating infectious conjunctivitis, an ocular surface condition commonly referred to as pink eye.

Source: Shire and Baxalta