- Ireland-based Shire on Monday announced a $32 billion stock and cash deal to buy Baxalta, bringing its months-long pursuit of the Illinois-based drug company to a close. Baxalta had previously rejected earlier all-stock offers from Shire.
- Shire will pay $18.00 plus 0.1482 of its American Depository shares for each Baxalta share. Based on Shire's closing price on January 8th, the deal values each Baxalta share at $45.57, or about $32 billion in aggregate.
- The deal had previously been held up by tax concerns. Baxalta's spin off from Baxter International was tax-free, and U.S. tax prohibits such deals being used as a mechanism to "funnel" cash to stockholders. Initially, Shire proposed an all-stock offer to avoid these complications.
Shire paid a roughly 37.5% premium for Baxalta, compared to the August 3, 2015 closing price when the initial offer was made. However, Shire gains Baxalta's hemophilia and rare-disease drug portfolio, along with a lower tax rate for the combined company than Baxalta would pay by itself. The combined company will have a tax rate of around 16%-17%, compared to the Baxalta's current rate of 23.5%.
Tax issues had threatened to derail the deal, as Baxalta's previous tax-free spin off from Baxter made it difficult to include cash in the offer and remain in accordance within U.S. tax laws.
"Shire has conducted additional tax due diligence, and based on this diligence, Shire and its tax advisor have concluded that a merger with the proposed cash consideration of $18 per Baxalta share will maintain the tax-free status of the Baxalta spinoff from Baxter," the company said in a statement.
The combined company will generate more than $20 billion in annual revenues by 2020, according to Shire. Additionally, the deal will result in $500 million in "annual cost synergies," produced by improved efficiency and scale.
“This proposed combination allows us to realize our vision of building the leading biotechnology company focused on rare diseases," Shire CEO Flemming Ornskov said. Shire's portfolio had been dominated by its ADHD drugs. However, it has aggressively expanded its rare-disease focus, acquiring Dynax Corp and NPS Pharmaceuticals last year.
The Boards of both companies approved the deal, and the deal is expected to close sometime in mid-2016.
Shire closed Monday's trading down nearly 9%, while Baxalta declined a little over 2%.