Shire ($SHPG) is reportedly preparing a new cash-plus-stock offer for Baxalta ($BXLT). The report comes almost four months after a $30 billion all-stock proposal was dismissed by Baxalta, leaving Shire to ponder how to advance its ambitions to become a rare disease powerhouse.
In the interim, Shire has headed off a potential threat to its hereditary angioedema franchise by acquiring Dyax in a $5.9 billion all-cash deal. But Shire CEO Flemming Ornskov has retained a desire to ink a bigger deal and continued to work on making such an agreement a reality. "He's never given up," an anonymous source, who claims to have direct knowledge of Shire's preparation of a new bid, told Reuters. The size of the new offer is unclear, but Shire is tipped to sweeten the earlier all-stock proposal with some cash. Shire is reportedly working with three banks to structure the deal.
Management designed the earlier all-stock deal, in part, to enable Baxter ($BAX) to sidestep the 35% corporation tax it would have to pay on money made in the sale of its spinoff. The tax stipulation is part of a U.S. law designed to stop corporations abusing the spinoff process. Shire tried to allay fears about the time it would take for shareholders to profit from the deal by committing to start a stock buyback program shortly after the takeover closes. But, with Baxalta advising investors that Shire had made a "lowball" offer, this measure proved insufficiently tempting.
In the months since the initial furor around the deal died down, reports have leaked out about the financial mechanisms Shire may use to sweeten the deal without attracting the attention of the tax man. The latest news triggered a 6% jump in the share price of Baxalta in late trading, beyond which the stock rose a little more after hours. Prior to the report, Baxalta was trading for $33 a share, 27% down on Shire's original offer. Back then, Baxalta peaked at just north of $40 a share. Shire's stock has also fallen by more than 20% since it went public with its desire to acquire Baxalta.
The Reuters report is short on financial details of the new offer. But with Baxalta viewing the initial $45.23-a-share bid as substantially undervaluing its business, it seems likely Shire will have to return with an offer notably above this price if its target is to play ball. Baxalta talked up the potential of its hemophilia assets and other pipeline programs in its case against the original bid. Ornskov, who knows the hemophilia business well from his time at Bayer, clearly sees value in the pipeline, too. How much he is willing to pay for it--and whether the sum is enough for Baxalta--is uncertain.
- read Reuters' article