Single-minded Shire finally pins down Baxalta with $32B deal

SAN FRANCISCO--The new year has its first megadeal agreement, thanks to Shire ($SHPG) and Baxalta ($BXLT). On Monday, the two finally announced a $32 billion tie-up after a months-long pursuit by the Dublin drugmaker.

Shire CEO Flemming Ornskov

Under the deal terms, Shire will fork over $18 in cash and 0.1482 Shire shares per Baxalta share, or $45.57 per share. When all is said and done, shareholders of the Illinois pharma will own 34% of the combined company. Two unnamed Baxalta directors will join the merged drugmaker's board, with Chairman Wayne Hockmeyer slated to become Shire's deputy chairman.

For Shire CEO Flemming Ornskov, the pact marks the culmination of a lengthy courtship. Shire first approached Baxalta on July 10, just 9 days after the latter spun off from parent company Baxter ($BAX). But Baxalta wasn't interested in Shire's $30 billion, all-stock offer, and it vehemently shot it down after Ornskov took the proposal public in early August.

But Shire never gave up, instead searching for a way to add cash to the mix without triggering a spinoff-related tax liability. Now, the skipper expects to hit his $20 billion-by-2020 sales goal--and deliver $500 million in annual cost cuts and a low Irish tax rate of between 16% and 17%. While the transaction will primarily boost Shire's rare-disease business--expected to generate 65% of combined-company revenues down the line--it'll also bring along a fledgling oncology portfolio that could help Shire break into that space.

Baxalta CEO Ludwig Hantson

"We bring to Shire a strong portfolio and pipeline of market-leading products, high-quality manufacturing capabilities and a talented global workforce that places patients at the center of everything we do," Baxalta CEO Ludwig Hantson said in a statement.

Not everyone likes the prospect of a Shire-Baxalta tandem as much as Ornskov does--especially considering the raft of competitors coming up the pipeline to challenge Baxalta in its core area of hemophilia. Analysts are "assuming larger risk to the Baxalta hemophilia business" than either management team is, Bernstein analyst Ronny Gal wrote to clients on Monday, and with that in mind, "the deal looks expensive."

- read the release

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