Drugmaker Shire bids $30 billion for Baxter spin-off Baxalta

By Paul Sandle

LONDON (Reuters) - Drugmaker Shire (SHP.L) said on Tuesday it was seeking to buy Baxalta (BXLT.N), a company spun-off by Baxter International (BAX.N) last month, for $30 billion (£19.2 billion) to forge the leading global specialist in rare diseases.

The London-listed group went public with its approach after the U.S. firm turned it down during private talks last month.

Baxalta rebuffed the offer on Tuesday and said in a statement that Shire's unsolicited offer significantly undervalued the company.

Shire's all-share offer values each Baxalta share at $45.23, based on Aug. 3 market prices. Baxalta's shares closed up nearly 12 percent at $37.10. Shire's stock closed down about 6 percent.

The Illinois-based firm, which has a staff of around 16,000, develops biotech treatments for rare blood conditions, cancers and immune system disorders. It had proforma revenue of $6 billion in 2014.

Baxalta offers Shire a promising range of new products to complement its growing portfolio of high-priced treatments for rare or "orphan" diseases, analysts said. But there is no guarantee that Shire, itself the target of a failed takeover in 2014, will land its prey.

"Shire may need to go hostile and success rates of pharma hostile bids are low," said Leerink analyst Jason Gerberry.

Shire said it would create an unrivalled rare diseases champion with product sales of around $20 billion by 2020 and double-digit percent annual sales growth.

The move is the latest in a wave of mergers and acquisitions in the healthcare sector since the start of 2014, stretching from large drugmakers buying up smaller rivals to consolidation among makers of generic medicines and tie-ups between insurers.

Shire's offer of 0.1687 Shire American depositary receipts per share, which represents a premium of 36 percent over Baxalta's stock price on Aug. 3, would give the U.S. firm's shareholders about 37 percent of the combined group.

Shire Chief Executive Flemming Ornskov said he had gone public with its plan, which it first proposed privately last month, after Baxalta's board declined to engage in substantive discussions.

He declined to talk about tactics on Baxalta or discuss whether he was prepared to go hostile, but said the deal offered both tax and revenue synergies and would be good for both sets of shareholders.

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Ornskov said he had tried to engage with Baxalta CEO Ludwig Hantson since early July. Apart from a brief "cordial" meeting on July 10, however, there had been no meaningful interaction, he added.

"As a result, you have left us with no choice but to make our proposal known to your shareholders. We believe they deserve an opportunity to consider it," the Shire boss wrote in an Aug. 4 letter to Hantson.

Ornskov, who expects to launch a $10 billion share buyback after any deal closes, added that it remained his strong preference to reach a negotiated agreement.

Dublin-based Shire has a long history of acquisitions and only on Monday agreed to buy private eye drug company Foresight Biotherapeutics for $300 million.

Other notable deals include buying New River Pharmaceuticals for $2.3 billion in 2007, Viropharma in 2013 for $4.2 billion and NPS Pharma for $5.2 billion this year.

Last year Shire itself was the target of a failed $50 billion takeover attempt by AbbVie (ABBV.N), since when its shares have risen to a premium to AbbVie's offer on growing optimism for its line-up of high-priced niche medicines.

The AbbVie deal unravelled after the U.S. government changed the rules on American companies domiciling overseas to take advantage of lower corporate tax rates.

Shire is, however, using its relatively low tax status as a selling point on this new deal, saying a combined group would have a 16-17 percent effective tax rate by 2017, down from around 21-24 percent for Baxalta.

But Ornskov told reporters the main driver was the strategic fit of the companies and the growth potential of a tie-up. "Tax is just one part of it, it's not the main part," he said.

Shares in Actelion (ATLN.VX), which had previously been tipped as a potential target for Shire, fell 2.9 percent.

Evercore and Morgan Stanley are acting as financial advisers to Shire.

(Additional reporting by Ben Hirschler and Ankur Banerjee and Natalie Grover; Editing by Kate Holton and Pravin Char)