Shire Clinches Deal For Baxalta
Source: Dow Jones News
(FROM THE WALL STREET JOURNAL 1/12/16) By Denise Roland and Richard Rubin
Shire PLC's six-month pursuit of Baxalta Inc. ended Monday when the two companies unveiled a $32 billion deal that they said would create the world's biggest rare-disease drugmaker.
News of Dublin-based Shire's deal for the Illinois company comes amid unease in Washington over U.S. tax policy and corporate growth. For months, the focus has been on U.S. efforts to prevent inversion transactions that allow companies to move their addresses overseas for tax benefits. But some lawmakers contend that not enough is being done to discourage the purchase of U.S. companies by foreign entities.
The two companies signed off on the deal after overcoming fears the tie-up could run afoul of U.S. laws that prohibit tax-free spinoffs from being used as a device to funnel cash to shareholders. Baxalta was separated from parent Baxter International Inc. in July.
Shire Chief Executive Flemming Ornskov said Monday that although the U.S. Internal Revenue Service would "of course" examine the deal, he was confident that the proposed transaction wouldn't violate U.S. rules, citing an unqualified opinion provided by lawyers and tax accountants.
The IRS said it is prohibited by federal law from discussing specific taxpayers.
A combined Shire and Baxalta would have an effective tax rate of 16% to 17% by 2017, lower than Baxalta's current rate of 23.5%.
One U.S. lawmaker, pointing to the tie-up, said it underscores the need for tax overhaul. "The deal proves that a new year can't hide the flaws of our outdated tax code," said Sen. Rob Portman (R., Ohio) on Monday. "If we want to keep U.S. businesses, jobs and investment in the U.S., tax reform must be a 2016 priority."
Shire agreed to pay $18 in cash plus 0.1482 of its American depository shares for each Baxalta share, making this one of the few ever cash-and-stock deals involving a recent tax-free spinoff. The deal terms imply a valuation of $47.50 per share based on Shire's average share price over the past 30 trading days, the drug companies said, and a valuation of $45.57 based on Shire's closing price on Friday.
Shares of Baxalta slid 2.3% to $39.10 on Monday, while Shire's ADS fell 8.9% to $169.37.
Shire was a focus of U.S. regulators in 2014, when it proposed a transaction with AbbVie Inc. Shire and AbbVie had a merger agreement that would have allowed AbbVie to invert and lower its tax rate. That deal, among others, prompted the Obama administration to propose tougher anti-inversion rules in September 2014. The AbbVie-Shire merger never closed and was the biggest casualty from the administration's actions.
Shire walked away with a $1.6 billion breakup fee and executives began looking at acquisitions.
Shire's agreement with Baxalta comes after six months of wrangling between the companies. Dr. Ornskov first approached Bannockburn, Ill.-based Baxalta to discuss a deal on July 2, just a day after it became a stand-alone company. Baxalta management rejected his all-stock first offer, worth around $45.23 when it was announced in August, saying it undervalued the company.
Subsequent negotiations were complicated by the fact that Shire's share price has fallen some 30% since then, because of a mix of investor skepticism over the deal and a broader rout in the biotech sector spurred by worries about the sustainability of high drug prices. That means that although the new offer isn't significantly higher on a per-share basis, it involves almost the same amount of stock as the first proposal, plus added cash.
Shire and Baxalta said the tie-up, which they expect to close in mid-2016, would generate annual cost savings of more than $500 million within the first three years.
Following the deal, Baxalta holders will have a 34% stake in the combined company. The deal's per-share value of $45.57 represents a premium of 37.5% over Baxalta's closing share price on Aug. 3, the day before Shire made public its interest in the company.
A deal would potentially allow any future Baxalta earnings outside the U.S. to be brought back to the Irish parent company without a significant second layer of tax-- a benefit the U.S. tax system doesn't allow. According to a securities filing, 46% of Baxalta's net sales in the first three quarters of 2015 were outside the U.S.
In addition, non-U. S. companies have an advantage because they can engage in maneuvers that load up a U.S. subsidiary with deductions such as interest payments to the parent company. These so-called earnings-stripping transactions lower taxable income in the U.S. with its 35% top rate and effectively shift it to a country with a lower rate. Ireland has a 12.5% corporate rate. U.S. Treasury officials have talked about writing rules limiting earnings stripping for more than a year, but haven't released anything.
Separate from tax considerations, the Shire-Baxalta deal would catapult the two midsize drug companies into the same league as Bristol-Myers Squibb Co. based on global prescription sales, according to data from EvaluatePharma, a market intelligence company. The companies said the enlarged group could deliver $20 billion in product sales by 2020.
The deal underlines the allure of rare-disease drugs, which don't face the same pricing pressures as those for more common ailments because each treatment targets such a small group of patients.
Dr. Ornskov said being the top player in rare diseases would give the combined company extra heft in marketing the drugs to specialists, and make it a desirable partner for others operating in the area.
Still, some analysts have said Shire is taking on a risk with Baxalta, whose large hemophilia franchise faces looming competition from a string of new treatments under development at rival drugmakers. In addition to Baxalta's hemophilia drugs, Shire would be adding immunology and cancer treatments to its portfolio, which largely comprises drugs for attention-deficit hyperactivity disorder, rare diseases and ophthalmic conditions.
(END) Dow Jones Newswires
January 12, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Source: Dow Jones News
(FROM THE WALL STREET JOURNAL 1/12/16) By Denise Roland and Richard Rubin
Shire PLC's six-month pursuit of Baxalta Inc. ended Monday when the two companies unveiled a $32 billion deal that they said would create the world's biggest rare-disease drugmaker.
News of Dublin-based Shire's deal for the Illinois company comes amid unease in Washington over U.S. tax policy and corporate growth. For months, the focus has been on U.S. efforts to prevent inversion transactions that allow companies to move their addresses overseas for tax benefits. But some lawmakers contend that not enough is being done to discourage the purchase of U.S. companies by foreign entities.
The two companies signed off on the deal after overcoming fears the tie-up could run afoul of U.S. laws that prohibit tax-free spinoffs from being used as a device to funnel cash to shareholders. Baxalta was separated from parent Baxter International Inc. in July.
Shire Chief Executive Flemming Ornskov said Monday that although the U.S. Internal Revenue Service would "of course" examine the deal, he was confident that the proposed transaction wouldn't violate U.S. rules, citing an unqualified opinion provided by lawyers and tax accountants.
The IRS said it is prohibited by federal law from discussing specific taxpayers.
A combined Shire and Baxalta would have an effective tax rate of 16% to 17% by 2017, lower than Baxalta's current rate of 23.5%.
One U.S. lawmaker, pointing to the tie-up, said it underscores the need for tax overhaul. "The deal proves that a new year can't hide the flaws of our outdated tax code," said Sen. Rob Portman (R., Ohio) on Monday. "If we want to keep U.S. businesses, jobs and investment in the U.S., tax reform must be a 2016 priority."
Shire agreed to pay $18 in cash plus 0.1482 of its American depository shares for each Baxalta share, making this one of the few ever cash-and-stock deals involving a recent tax-free spinoff. The deal terms imply a valuation of $47.50 per share based on Shire's average share price over the past 30 trading days, the drug companies said, and a valuation of $45.57 based on Shire's closing price on Friday.
Shares of Baxalta slid 2.3% to $39.10 on Monday, while Shire's ADS fell 8.9% to $169.37.
Shire was a focus of U.S. regulators in 2014, when it proposed a transaction with AbbVie Inc. Shire and AbbVie had a merger agreement that would have allowed AbbVie to invert and lower its tax rate. That deal, among others, prompted the Obama administration to propose tougher anti-inversion rules in September 2014. The AbbVie-Shire merger never closed and was the biggest casualty from the administration's actions.
Shire walked away with a $1.6 billion breakup fee and executives began looking at acquisitions.
Shire's agreement with Baxalta comes after six months of wrangling between the companies. Dr. Ornskov first approached Bannockburn, Ill.-based Baxalta to discuss a deal on July 2, just a day after it became a stand-alone company. Baxalta management rejected his all-stock first offer, worth around $45.23 when it was announced in August, saying it undervalued the company.
Subsequent negotiations were complicated by the fact that Shire's share price has fallen some 30% since then, because of a mix of investor skepticism over the deal and a broader rout in the biotech sector spurred by worries about the sustainability of high drug prices. That means that although the new offer isn't significantly higher on a per-share basis, it involves almost the same amount of stock as the first proposal, plus added cash.
Shire and Baxalta said the tie-up, which they expect to close in mid-2016, would generate annual cost savings of more than $500 million within the first three years.
Following the deal, Baxalta holders will have a 34% stake in the combined company. The deal's per-share value of $45.57 represents a premium of 37.5% over Baxalta's closing share price on Aug. 3, the day before Shire made public its interest in the company.
A deal would potentially allow any future Baxalta earnings outside the U.S. to be brought back to the Irish parent company without a significant second layer of tax-- a benefit the U.S. tax system doesn't allow. According to a securities filing, 46% of Baxalta's net sales in the first three quarters of 2015 were outside the U.S.
In addition, non-U. S. companies have an advantage because they can engage in maneuvers that load up a U.S. subsidiary with deductions such as interest payments to the parent company. These so-called earnings-stripping transactions lower taxable income in the U.S. with its 35% top rate and effectively shift it to a country with a lower rate. Ireland has a 12.5% corporate rate. U.S. Treasury officials have talked about writing rules limiting earnings stripping for more than a year, but haven't released anything.
Separate from tax considerations, the Shire-Baxalta deal would catapult the two midsize drug companies into the same league as Bristol-Myers Squibb Co. based on global prescription sales, according to data from EvaluatePharma, a market intelligence company. The companies said the enlarged group could deliver $20 billion in product sales by 2020.
The deal underlines the allure of rare-disease drugs, which don't face the same pricing pressures as those for more common ailments because each treatment targets such a small group of patients.
Dr. Ornskov said being the top player in rare diseases would give the combined company extra heft in marketing the drugs to specialists, and make it a desirable partner for others operating in the area.
Still, some analysts have said Shire is taking on a risk with Baxalta, whose large hemophilia franchise faces looming competition from a string of new treatments under development at rival drugmakers. In addition to Baxalta's hemophilia drugs, Shire would be adding immunology and cancer treatments to its portfolio, which largely comprises drugs for attention-deficit hyperactivity disorder, rare diseases and ophthalmic conditions.
(END) Dow Jones Newswires
January 12, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
