Shire, the London-listed drugs company, has agreed to buy Baxaltafor $32bn (£22bn) after receiving assurances that it will not face a big tax bill in the US by including cash in its bid.
The agreement caps Shire’s six-month pursuit of Baxalta, which was lengthened by tax complications. Shire, which is based in Dublin for tax purposes and managed in Boston, appealled to Baxalta’s shareholders to push for a deal after the board of the rare disease specialist turned down an approach worth $45.23 per share.
The agreed deal, increased with a large cash element, is the latest takeover in the pharmaceuticals industry as companies with older drugs seek to acquire the next generation of profitable medicines.
Baxalta, based in Bannockburn, Illinois, develops treatments for rare blood conditions, cancers and immune system disorders. The deal will advance the desire of Shire, best known for hyperactivity treatments, to broaden its range of rare disease treatments.
Shire expects to save more than $500m of costs within three years of the completed deal. It predicted revenue gains and said the combined company would pay a tax rate of 16-17% by 2017 due to Ireland’s low corporate tax rate.
The deal has been delayed amid doubts over whether Shire could include cash without facing a hefty charge.
Baxalta split from Baxter, the US medical group, last year and was initially concerned that accepting a cash offer too soon after being spun off could violate US rules designed to prevent spinoffs from being used to dodge taxes.
Under the terms of the deal, Shire will pay Baxalta shareholders $18 in cash and 0.1482 Shire American depositary receipt per share. The implied $47.50 price is 37.5% higher than Baxalta’s share price on 3 August before an initial all-share offer by Shire was announced.
Shire was the biggest faller on the FTSE 100 index on Monday, down just over 8% to £39.25; Baxalta shares were down more than 2% in early trading in New York to about $39.
Shire said it had conducted additional tax due diligence: “Based on this diligence, Shire and its tax adviser 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,” it added.
Tax has been an important element in the success or failure of cross-border deals between drugmakers. A proposed $54bn takeover of Shire by Abbvie collapsed in 2014 after a political backlash in the US against American companies moving headquarters abroad for tax reasons.
The deal marks a strong start to the year for mergers and acquisitions in healthcare after the sector had its biggest year of deal-making streak in 2015. Global deals added up to $673bn, according to Thomson Reuters data.
Shire’s chief executive, Flemming Ørnskov, pursued Baxalta after his initial overtures were rebuffed by meeting Baxalta’s major shareholders over a period of months to put pressure on his target’s board.
He said: “This proposed combination allows us to realise our vision of building the leading biotechnology company focused on rare diseases. Our expanded portfolio and presence in more than 100 countries will drive our growth to over $20bn in anticipated annual revenues by 2020. Our due diligence has reinforced our belief in the combination.”
Top 10 pharmaceutical deals in the past two years
source: Thomson Reuters (figures include debt)
November 2015:Pfizer (US) agreed to buy Actavis/Allergan (US) for $192bn
September 2015: Pfizer (US) buys Hospira (US) for $17bn
August 2015: Shire (Ireland) offers to buy Baxalta (US)
July 2015: Teva (Israel) agreed to buy Allergan’s generic drugs arm for $41bn
June 2015: Baxter (US) spins off Baxalta to shareholders in a deal valued at $20bn
May 2015: AbbVie (US) buys Pharmacyclics (US) for $20bn
April 2015:Valeant (US) buys Salix (US) for $16bn
March 2015: Actavis (US) bought Allergan (US) for $66bn
March 2015: Novartis (Switzerland) buys GlaxoSmithKline’s (UK) oncology business for $16bn
July 2014: Actavis (US) buys Forest Laboratories (US) for $24bn