Shire Takes Baxalta Proposal to Shareholders

Shire confirmed on Aug. 4, 2015 that it made a proposal to Baxalta on July 10, 2015, to combine the companies to create a “global leader in rare diseases with multiple billion-dollar franchises in high-value therapeutic areas with substantial barriers to entry,” according to a Shire press statement.

Shire reports that it proposed an all-stock transaction pursuant to which Baxalta shareholders would receive, for each Baxalta share, 0.1687 Shire ADRs, a potential value of $45.23 per Baxalta share. Shire states that this offer represents a significant premium of 36% over Baxalta’s stock price as of Aug. 3, 2015.

Shire reports that Baxalta has declined to engage in substantive discussions regarding the proposal and has released the proposal to Baxalta shareholders. In a letter to Ludwig N. Hantson, president and chief executive officer of Baxalta, Flemming Ornskov, chief executive officer of Shire, wrote:

“We have sought to engage with you regarding such a combination since early July. Other than a brief meeting on July 10th at which we outlined our proposal and its benefits, your lack of engagement has been surprising. On July 31st, weeks after receiving our written proposal and without any meaningful interaction, you stated that you had concluded it was not a basis for discussions. As a result, you have left us with no choice but to make our proposal known to your shareholders. We believe they deserve an opportunity to consider it.

As we have consistently articulated, we believe that a combination of our businesses in an all-stock transaction provides your shareholders with both substantial current value and long-term upside. A combination with Shire also fully aligns with your articulated vision to become a leading Rare / Orphan Diseases company.”

In a response statement on Aug. 4, Baxalta acknowledged that it received a proposal privately on July 10, 2015, and the board of directors unanimously determined that it is 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 statement.

Shire estimates that the two companies are projected to deliver product sales of $20 billion in 2020, advancing the combined pipeline and bringing new therapies to market for patients with rare, often life-threatening, diseases and conditions.

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.

Sources: Shire and Baxalta

Editor's Note: Updated on Aug. 5 to add Baxalta's response.