Shire CEO Ornskov faces a tough slog in quest to acquire Baxalta

Baxalta CEO Ludwig Hantson

Baxalta execs didn't like the idea of a $30 billion all-share Shire buyout when they heard it the first time on July 10--and they didn't warm to it at all when Shire decided to go public with the offer Tuesday morning. And after Baxalta issued its blanket rejection of Shire's offer Tuesday evening, analysts began to line up to note the tough odds Shire faces in executing a takeover, which many believe will take a significantly higher offer for a company that relies heavily on a vulnerable portfolio of drugs for hemophilia.

In a letter from Baxalta ($BXLT) CEO Ludwig Hantson to Shire's Flemming Ornskov, Hantson noted that the company has only been public for a few weeks, and its share price hasn't caught up with its prospects. Hantson also didn't believe the numbers would work well for either company, particularly as it relates to the cuts Shire ($SHPG) is planning in order to make the deal economical.

Shire CEO Flemming Ornskov

"Moreover, we do not believe that a combination of our two companies would be strategically complementary, or that our respective product portfolios would benefit from such a combination," added Hantson. "And we do not think the combination would generate substantial operational or revenue synergies, which would be critical to any potential value creation for our shareholders. Perhaps even more importantly, a transaction at this time would be severely disruptive to our young organization and the implementation of a wide variety of critical commercial, R&D, and operational initiatives and thus carries with it significant risks for our shareholders."

The market seems skeptical about a deal as well. Shire laid out a proposal to pay $45.23 a share in stock for the company, but Baxalta shares ended the day up only 12%, and that $37 price was hardly an endorsement of a pending deal. The Wall Street Journal's Helen Thomas, meanwhile, picked apart the plan in her Heard on the Street column, noting that "it is also hard to avoid the impression that Shire's appetite for ever bigger, more risky deal making is simply testing investors' tolerance."

Shire ended the day down 5%, even though other big biotech deals, such as Celgene's ($CELG) recent $7 billion buyout of Receptos, earned a big gain in share price along with considerable enthusiasm.

The buyout proposal also earned more than its share of head scratching among analysts. Baxalta may be newly independent following a recent spinoff from Baxter, but it has an effective poison pill defense in position to repel Shire if it decides to go fully hostile. Bernstein analysts were in a quandary over Baxalta's reliance on hemophilia drugs, a group of therapies that could be severely disrupted if gene therapies in the clinic become a new standard of care in the field. Other analysts were quietly telling Reuters and others that they didn't see any deal in the offing that didn't include a price tag north of $50 a share -- with some expecting more than a tradeoff in stock to make this deal happen.

Jason Gerberry at Leerink called the deal "highly uncertain," as Baxalta's team has refused to engage over the bid. That said, there are some appealing aspects from Wall Street's perspective, including cost synergies (read cuts and layoffs here) that remain distinctly on the hazy side.

"If SHPG were to go hostile," Gerberry added, "we'd envision a 6-8 month process at a minimum. While we haven't familiarized ourselves with BXLT bylaws, we would expect a 1-2 month process before SHPG could theoretically get a record date set for a shareholder vote + another 180-days for a vote to consider board changes. SHPG mgmt noted on the call they'd remain nimble and run business as usual during whatever the process would entail."

Shire CEO Ornskov started today clearly intending to put his company in a position of strength in forcing a deal with Baxalta. It's ending the day looking much weaker.

- here's the note from Baxalta

Special Report: The 25 most influential people in biopharma in 2015 - Flemming Ornskov - Shire

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