The London-listed drug company Shire has made a $30bn (£19bn) hostile takeover bid for the rare-disease specialist Baxalta.
Shire’s unsolicited offer – a direct appeal to shareholders after Baxalta’s board spurned its advances – comes amid a frenzy of dealmaking in the pharmaceutical industry, as companies race to discover the next generation of profitable medicines, before current pipelines run dry.
Shire announced it was ready to pay $45.23 (£28.96) per Baxalta share, a 36% premium on Baxalta’s stock price on Monday. In a bold appeal to Baxalta’s shareholders, Shire claimed that merging the two companies would create “the global leader in [treating] rare diseases” with combined sales of $20bn by 2020.
If Shire’s approach succeeds, the merger would be one of the 20 largest pharma and biotech deals, according to Dealogic.
Shire’s play for Baxalta comes after it was nearly taken over itself by Illinois-based rival AbbVie in 2014. The proposed $54bn tie-up between Shire and Abbvie fell apart in the wake of a political backlash in the US against American companies moving headquarters abroad for tax reasons.
On the rebound from Abbvie, Shire has gone on an acquisition spree: earlier this year it spent $5.2bn buying rare disease specialist NPS Pharma. On Monday, it announced it was spending $300m on a company developing a treatment for conjunctivitis.
Analysts were braced for another deal, but the timing of Tuesday’s bid was a surprise.
Shire, best known for drugs to combat hyperactivity, was founded in the UK, is managed in Boston, and headquartered in Dublin, although it generates more than two thirds of sales in the US.
Baxalta, which specialises in drugs to treat rare and hard-to-treat diseases of the blood and immune system, and is working on a treatment for sickle cell disease, became an independent company in July, after being spun off by larger US healthcare firm, Baxter International. Baxter retains a 19.5% stake in Baxalta, after the new company made its debut on the New York Stock Exchange in July.
Shire brought in $5.8bn of sales in 2014 and employed 5,000 people, while Baxalta’s sales totalled $6bn with a 16,000-strong workforce.
Baxalta would be a major prize for Shire, as it is expected to launch around 20 new products before 2020, with growth forecast at 6-to-8% a year.
Shire has been trying to coax Baxalta into merger talks since early July, but its overtures have been rebuffed, prompting Shire to make a direct appeal to shareholders.
“Other than a brief meeting on 10 July at which we outlined our proposal and its benefits, your lack of engagement has been surprising,” the Shire chief executive, Flemming Ornskov, wrote in an open letter to his counterpart, Ludwig Hantson at Baxalta. “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.”
Baxalta did not respond to a request for comment. Shire said it had not discussed its proposal with Baxter.
Shire is proposing an all-stock deal that would give it 63% of the combined group, leaving Baxalta shareholders 37%.
Lisa LaMotta, a senior writer at Scrip Intelligence, a specialist news source on the pharmaceutical industry, said such all-share deals were rarely successful, as shareholders preferred a less risky mix of cash and shares.
“It is going to be an uphill battle for Shire if they want to make this come through,” she said. “Baxalta would like to go it alone and prove themselves as a leader in speciality pharmaceuticals.”
LaMotta said the two firms had little overlap in their product lines and it was hard to see how Shire could contribute to Baxalta’s growth in any meaningful way.
Analysts at stockbroking firm Charles Stanley said the deal made “strategic sense”, but warned Shire that it may need to improve its offer.
“With Baxalta’s board having been unwilling to engage, there is no guarantee that any transaction will proceed,” said the firm. “In light of recent M&A [mergers and acquisitions] activity in the sector we feel that in order to encourage further engagement it is likely that Shire will need to increase the attractiveness of its offer terms.”
Deal making in the pharmaceutical industry has reached fever pitch, as companies scramble for new discoveries and seek to reap economies of scale by becoming bigger.
In the year to date, deals in the pharmaceutical and biotech sector have totalled $334bn worldwide, according to Dealogic, more than twice as many as the same period last year and five times greater than 2012.
Pharma and biotech deals account for 12% of all mergers and acquisition activity this year, compared with 7% in 2014.
Shares in FTSE 100 company Shire fell as much as 7.9% after the approach was revealed, but the loss was capped at 4%, at £55 a share.
Deal frenzy
Since 2014 the pharmaceuticals has been a hive of activity for investment bankers. Here are two of the biggest deals over that period, and the two most controversial failed takeovers.
Teva and Allergan
Israeli-firm Teva shored up its position as the world’s largest maker of generic (non-branded) medicines, when it bought Allergan’s generic pharmaceuticals business for $40.5bn (£26.1bn) in July 2015. Said to be the largest ever acquisition by an Israeli company, the deal is expected to bring economies of scale for Teva, an important consideration in the hyper-competitive business of making non-branded medicines. Generic drugs are less expensive than branded drugs, but the prices of some generics have soared due to a lack of competition or shortages brought on by manufacturing problems.
Allergan and Actavis
Dublin-based Allergan sold its generics business, after it agreed to be bought by Actavis, a US firm domiciled in Ireland, in a deal valued at $66bn. The completion of the deal in March 2015 created one of the top ten biggest pharmaceutical companies in the world, known under the Allergan brand. Allergan was founded in Los Angeles in 1948 with an anti-allergy nose drop, but its bestseller is the face-freezing filler Botox, which it is seeking to develop for new purposes such as osteoporosis treatments.
And two that never happened
Pfizer and AstraZeneca
It could have been one of the biggest-ever takeovers of a British firm, but collapsed in acrimony. In 2014 the US drugmaker Pfizer failed to secure a proposed $69bn takeover of AstraZeneca, after the British company spurned its American rival’s approach. Scientists, trade unions and politicians on both sides of the Atlantic had lined up to criticise a deal they said was motivated by tax avoidance and cuts to research jobs. AstraZeneca thinks a repeat offer is unlikely: boss Pascal Soriot has said the tightening of US tax rules means US firms are less likely to attempt to takeover their foreign rivals to reduce their tax bills.
AbbVie and Shire
The US drugs group AbbVie was forced to abandon a proposed $54bn (£34bn) takeover of Britain’s Shire after the US government introduced rules to clamp down on overseas acquisitions driven by tax avoidance. The Chicago-based company had planned to shift its tax base from the US to Britain as part of the deal to cut its corporation tax rate from 22% to 13% by 2016.
Shire is listed on the London stock exchange, but has its headquarters in Dublin, where it can take advantage of Ireland’s low corporate tax rates. But almost three-quarters of its sales are made in the US.