Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Baxalta, we hardly knew ye. 

Adopting Orphans
New treatments for rare diseases are growing fast. Here are consensus revenue forecasts for Shire and Baxalta, which are merging in a $32 billion deal.
Source: Bloomberg

Mere days after its tax-free spinoff from Baxter International in June, Illinois drugmaker Baxalta became Shire's prey. And on Monday, in one of the fastest turnovers in ownership (and likely at the great displeasure of the U.S. Treasury), the $32 billion deal became official. Shire, aggressively building a stable of rare-disease treatments catering to small patient populations but selling for very high prices, captures Baxalta's leading presence in hemophilia, a rare-blood disorder that affected about 20,000 people in 2014. 

Baxalta's Ludwig Hantson might be one of the shortest-reigning CEOs, although he probably saw it coming. One can't list a growing pharmaceutical or biotechnology business during the industry's biggest consolidation phase and expect to slip past acquirers unnoticed. 

And as for investors in new listings, there's always the risk of missing out on future stock-price gains if they accede to bidders too soon. This probably isn't the case for Baxalta, though.

Shire's offer works out to about $45.57 a share based on the closing price of the Dublin-based drugmaker's American depositary receipts last week. The cash-and-stock transaction will give Baxalta shareholders a stake in Shire, whose ADRs are forecast to climb 45 percent over the next year, according to the average of 12 analysts' estimates compiled by Bloomberg. Even the least bullish estimate is 20 percent higher than Shire's final price last week. As for Baxalta, still new to the stock market, analysts foresaw it climbing just 4 percent over the next 12 months (probably in part because its shares were already strengthened by the expectation of a deal).

From Spinoff to Takeover
Based on Shire's Jan. 8 closing level, its cash-and-stock offer is a 7 percent premium to the price analysts were predicting Baxalta shares would be trading for in a year. Shire's ADRs slid about 4 percent Monday.
Source: Bloomberg

Shire's ADRs will fund 60 percent of the payment, preserving its ability to borrow money for future acquisitions. Baxalta shareholders will get to benefit from this as well. Shire is astutely transitioning to a biotech company as much of the rest of the industry reveals a desperation for ways to fill in holes left by once big-time medicines whose patents expired in the past few years. Some are increasingly favoring acquisitions to deliver a quick growth spurt during  the long, costly process of finding and developing new therapies that still need regulatory approvals. Shire also already has the Irish tax domicile that some rival American drugmakers are still after in the face of more government scrutiny of tax-inversion transactions (Shire made its move from England to Ireland in 2008, before doing so was such a big deal). 

There's no doubt that Baxalta is stronger with Shire than without. How strong may be determined by subsequent acquisitions. When Shire first approached Baxalta, there was talk that the combined entity would be a ripe candidate for New York-based Pfizer, which is simultaneously wanting to lower its tax rate and replenish its pipeline ahead of a plan to later break itself up. But if that were a possibility, Pfizer certainly didn't wait, agreeing instead to an all-stock merger with Dublin-based Allergan in November -- the biggest pharma deal ever. 

Another idea Shire could weigh following the Baxalta deal is a purchase of BioMarin, a $15 billion biotech business that also focuses on rare diseases. Shire would become a rare-disease powerhouse. There's also RARE itself -- that's the ticker for Ultragenyx Pharmaceutical, a company whose stock surged more than 50 percent in the past 12 months even as the industry went through a trading rout. It's now valued at $3.2 billion. I've written about other possible fits for Shire here.

Needless to say, Baxalta shareholders probably got a decent deal, and there's more to come

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net