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Mergers and Acquisitions

Date: 2016-06-03

Type of information: Company acquisition

Acquired company: Baxalta (USA - IL)

Acquiring company: Shire (UK - USA)

Amount: $32 billion

Terms:

* On June 3, 2016, Shire completed its combination with Baxalta. Through the combination, Shire expects to deliver double-digit compound annual top-line growth, with over $20 billion in annual projected revenue by 2020 and approximately 65% of total annual revenues being immediately generated by its rare disease products. Shire now has more than 50 programs in clinical development, with a balanced mix of early, mid and late-stage projects. As a result of the completion of the combination:
The appointment of Gail D. Fosler and Albert P.L. Stroucken to the Shire Board of Directors, announced on April 18, 2016, is effective;
Baxalta shareholders will receive a combination of $18.00 in cash and 0.1482 Shire ADS’s for each Baxalta share (or 0.4446 of a Shire ordinary share if the Baxalta shareholder validly elected to receive ordinary shares).
* On May 27, 2016, Baxalta announced the results of a vote on the proposals identified in the definitive proxy statement/prospectus, dated April 18, 2016 , at a special meeting of shareholders held earlier this morning relating to the proposed combination with Shire. Baxalta shareholders approved the definitive merger agreement with Shire, dated as of January 11, 2016 , and the merger transaction, with approximately 98.9 percent of shares outstanding cast in favor of the proposal.
* On May 27, 2016, Shire announced that, at a general meeting convened for the purpose, its shareholders have approved proposals relating to Shire’s combination with Baxalta, which would create the leading global biotechnology company in rare diseases and other highly specialized conditions. Under the merger agreement, at closing Baxalta shareholders will receive $18.00 in cash and either 0.1482 Shire ADSs or 0.4446 Shire Ordinary shares per Baxalta share. Shire expects the transaction will complete on June 3, 2016.

* On May 23, 2016, Baxalta announced the preliminary results of the elections made by its stockholders as to the form of stock consideration to be received in Baxalta’s merger with Shire. As previously announced, upon the consummation of the merger, each outstanding Baxalta share will be converted into the right to receive: (i) $18.00 in cash, and (ii) either 0.1482 of a Shire American Depositary Share (a “Shire ADS”), with each Shire ADS representing three ordinary shares of Shire, or if a Baxalta stockholder elects, 0.4446 of an ordinary share of Shire.
Based on available information, the exchange agent for the election process has advised that, as of the election deadline of 5:00 p.m. Eastern Time on May 20, 2016 , holders of approximately 41,803,203 Baxalta shares, or approximately 6.10% of the outstanding Baxalta shares, elected to receive ordinary shares of Shire rather than Shire ADSs.
Baxalta stockholders who made an ordinary share election will be unable to sell or otherwise transfer their shares unless the ordinary share election was properly revoked prior to the election deadline or unless the merger agreement is terminated. Baxalta stockholders who did not make an ordinary share election or who properly revoked any such election prior to the election deadline will, by default, receive Shire ADSs in the merger.
* On January 11, 2016, Shire and Baxalta announced that the boards of directors of both companies have reached an agreement under which Shire will combine with Baxalta. Under the agreement, Baxalta shareholders will receive $18.00 in cash and 0.1482 Shire ADS per Baxalta share. Based on Shire’s closing ADS price on January 8, 2016, this implies a total current value of $45.57 per Baxalta share, representing an aggregate consideration of approximately $32 billion. The exchange ratio is based on Shire’s 30-day trading day volume weighted average ADS price of $199.03 as of January 8, 2016, which implies a total value of $47.50 per Baxalta share.
The value of the offer, as of Shire’s January 8, 2016 closing ADS price, represents a premium of approximately 37.5% to Baxalta’s unaffected share price on August 3, 2015, the day prior to the public announcement of Shire’s initial offer for Baxalta. This will provide Baxalta shareholders with approximately 34% ownership in the combined company. The parties expect the transaction to close mid-2016.
The transaction has been approved by the boards of directors of both Shire and Baxalta. Closing of the transaction is subject to approval by Baxalta and Shire shareholders, certain regulatory approvals, redelivery of tax opinions delivered at signing and other customary closing conditions. 
* On August 4, 2015, Baxalta confirmed receipt from Shire of a highly conditional, unsolicited proposal to acquire all of the outstanding common shares of Baxalta in an all-stock transaction under which Baxalta shareholders would receive for each Baxalta share 0.1687 Shire ADRs. Baxalta noted that it received this same proposal privately on July 10, 2015. In accordance with its fiduciary duties, Baxalta’s Board of Directors, in consultation with its financial and legal advisors, carefully reviewed the proposal and unanimously determined that it is not in the best interests of Baxalta or its shareholders. The Board of Baxalta is being advised by Goldman Sachs and Citigroup as to financial matters and Kirkland & Ellis as to legal matters.

* On August 4, 2015, Shire announced that the company has proposed combination with Baxalta to create the leading global biotech company focused on rare diseases. Shire said that its proposal of an all-stock combination of 0.1687 Shire ADRs for each Baxalta share represents a value of $45.23 per Baxalta share based on Shire's August 3, 2015 closing price; a total enterprise value of $33.9 billion; a 36% premium to Baxalta's closing share price on August 3, 2015; and a 15x multiple of last twelve months EBITDA as of March 31, 2015. Assuming 680 million outstanding shares of Baxalta common stock on a fully diluted basis, Baxalta's shareholders would hold approximately 37% of the combined company.

Details:

The combination of Baxalta and Shire will create the number one rare diseases platform in revenue and pipeline depth, with best-in-class products in six growing franchises (hematology; immunology; neuroscience; lysosomal storage diseases; gastrointestinal / endocrine; hereditary angioedema). The combined company will also possess a growing franchise in Oncology, with approved products and innovative compounds in development, as well as a robust late-stage Ophthalmics pipeline.
The combined portfolio will have an expanded range of therapeutic areas with more than 60 programs in development, including over 50 that will address rare diseases and the newly-approved Baxalta products Adynovate®, Vonvendi® and Obizur®. Shire anticipates more than 30 recent and planned product launches from the combined pipeline, contributing approximately $5 billion in annual revenues by 2020.

The portfolio will include over 20 leading brands and a robust pipeline of expected new product launches with complementary positions across growing multi-billion-dollar franchises:

Hematology: Baxalta has a well-established hematology portfolio based on its heritage and legacy of leadership in hemophilia. Baxalta offers a comprehensive portfolio of innovative therapeutics, including Adynovate®, Antihemophilic Factor (Recombinant), PEGylated, an extended circulating half-life recombinant factor VIII (rFVIII) treatment for hemophilia A which was recently approved in the U.S., and is focused on introducing new treatments for hemophilia and other rare chronic bleeding disorders to further reduce patient burdens.

Immunology: Baxalta is contributing the broadest portfolio of immunoglobulin (IG) products in the industry, most notably the recently launched Hyqvia®, a next generation subcutaneous IG treatment for patients with primary immunodeficiency, as well as a pipeline of innovative products across a broad range of potential new indications.

Neuroscience: Shire has over 20 years of experience in neuroscience with a strong, growing ADHD franchise and pipeline, including a new Vyvanse® indication for adults with moderate-to-severe Binge Eating Disorder.

Lysosomal Storage Diseases: Shire brings industry-leading capabilities in the development and commercialization of a wide range of therapies for multiple rare and devastating genetic diseases including: Vpriv® for long-term enzyme replacement therapy (ERT) for patients with type 1 Gaucher disease; Elaprase® for patients with Hunter syndrome (Mucopolysaccharidosis II, MPS II); and Replagal® for long-term ERT in patients with a confirmed diagnosis of Fabry disease .

Gastrointestinal / Endocrine: Shire’s Gastrointestinal / Endocrine portfolio is built on the strength of its 5-ASA products, Lialda®, for the treatment of mild to moderate ulcerative colitis, and Pentasa®, for the treatment of mildly to moderately active ulcerative colitis, and recent additions of Gattex®/Revestive®, for adults with short bowel syndrome who are dependent on parenteral support, and Natpara® as an adjunct to calcium and vitamin D to control hypocalcemia in patients with hypoparathyroidism.

HAE: Shire brings HAE leadership through its currently approved prophylactic and acute therapies, Cinryze® and Firazyr®, respectively, and—pending completion of the Dyax acquisition—a Phase 3, potentially transformative prophylactic therapy

Ophthalmics: Shire is focused on building franchise leadership in ophthalmology with the 2016 projected launch of Lifitegrast, contingent upon regulatory approval, for dry eye disease; SHP640 for infectious conjunctivitis entering Phase 3 trials in 2016, and SHP607 for the treatment of retinopathy of prematurity, generating results from its Phase 2 trials which are expected in 2016

Oncology: Baxalta brings a growing oncology business and a broad platform that positions the combined company at the leading-edge of discovery and development of innovative therapies in hematological and other cancers. The portfolio includes Oncaspar® (pegaspargase), a marketed biologic treatment for acute lymphocytic leukemia, and late-stage, partnered products such as pacritinib, an investigational oral kinase inhibitor for the treatment of patients with myelofibrosis, and Onivyde® (irinotecan liposome injection) for the treatment of patients with metastatic pancreatic cancer.

Shire anticipates that it will realize more than $500 million in annual cost synergies (expected to be achieved within the first three years post-closing). These annual cost synergies will be achieved by increasing efficiencies, leveraging the scale of the combined business, aligning to Shire’s lean operating model and optimizing the combined R&D portfolio. Further, Shire expects to generate additional revenue synergies and a combined non-GAAP effective tax rate of 16-17% by 2017. Growth is expected to be accelerated by combining capabilities and establishing a global infrastructure that will include a “best of both” commercial model and a presence in over 100 global markets.

The transaction is expected to be accretive to non-GAAP diluted EPS in 2017, the first calendar year of ownership, and beyond. The combined company is expected to generate annual operating cash flow of $6.0 billion beginning in 2018. Shire has conducted additional tax due diligence, and based on this diligence, Shire and its tax advisor have concluded that a merger with the proposed cash consideration of $18 per Baxalta share will maintain the tax-free status of the Baxalta spinoff from Baxter.
Shire has secured an $18 billion fully underwritten bank facility to finance the combination. The new bank facility has a one year life, with a one-year extension available at Shire’s option. Shire intends to refinance the bank facility through capital market debt issuances in due course. The financing of the transaction has been structured with the intention of maintaining an investment grade credit rating for the combined entity. Shire is committed to de-levering rapidly post-close by deploying free cash flow to repay debt. Shire is targeting a net debt to EBITDA range of between 2.0x and 3.0x 12-18 months post-closing.

Related:

Rare diseases

Is general: Yes