Baxalta Shares Up 13% on Shire Public Offer

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Baxalta shares (NYSE:BXLT) shares have risen by more than 13% to 38.47 today following publication of a hostile takeover bid by Shire PLC (LSE:SHP).

U.S.-based Baxalta is a $6 billion global biopharmaceutical leader, developing, manufacturing and commercializing therapies for orphan diseases and underserved conditions in hematology, oncology and immunology. Baxalta’s broad and diverse pipeline includes biologics with novel mechanisms and advanced technology platforms such as gene therapy. Baxalta was incorporated in 2014 and has operated independently of Baxter International, Inc. (NYSE:BAX) since July 1, 2015. That’s right, just a month ago.

Dublin-based Shire made public its intention to acquire Baxalta for $30 billion, which is a premium of 36% on yesterday’s closing share price of 33.15. Shire shares hit an intraday high of 5,870.00 at 12:28 p.m., then fell sharply to 5,275 by 12:43 p.m. The public announcement was released at 12:30 p.m. Trading in Shire was modest until the revelation of the offer. Volume this afternoon has already exceeded 3.8 million shares, nearly 350% above normal.

The Back Story

Representatives of Shire met with Dr. Ludwig Hantson, Baxalta President and CEO, on 10 July to propose the acquisition, but it appears that Dr. Hantson passively rebuffed the overture, not proffering a response until 31 July, at which time he concluded that the offer represented “no basis for discussion.” Since he offered no substantive information in his response, we might assume that his lack of interest could be based on the absence of any cash in the proposal.

Regardless, Shire is displaying its determination to obtain Baxalta by taking the proposal out of the conference room and into the headlines, putting it squarely before the company’s shareholders in hopes that the offer will no longer fall on deaf ears.

Shire CEO, Fleming Ornskov, reiterated the benefits of the proposal to Hatson in a letter, also made public within the content of the announcement. He said, in part, that the deal would:

  • Significantly accelerating the value and mitigating the risk of Baxalta’s standalone strategy while providing a substantial immediate premium to Baxalta’s current share price and participation in future upside;
  • Strong expected operating synergies as well as benefits from our tax structure to drive meaningful earnings accretion and provide an enhanced growth profile relative to the standalone Baxalta strategy; and
  • A stronger balance sheet that would provide financial flexibility and the ability to launch a sizable share buy-back program to enhance the capital structure and further improve the per share earnings profile of the combined company.

The Best Time to Sell

If you’ve ever been in the middle of mergers and acquisitions, you already know that there can be a myriad of personal and corporate issues that are intricately involved in the process, but which are never exposed to the light of day. For that reason alone, I would offer Dr. Hantson a piece of advice that has proven to be priceless:

The best time to sell anything is when someone wants to buy it.

Dr. Hantson, this is the time. It doesn’t matter what your ego or your vision is. You do not know what tomorrow holds. Given the market response today, you are being sent a clear message (discounting those who are looking to make a quick buck by betting on the deal). You may think that you can withdraw into the shell of your new-found corporate independence, but what you may really be doing is burying your head in the sand.

The saddest part of burying your head in the sand is not that you miss what is going on, but that your butt is up in the air, exposed to anyone who wants to kick it.

My advice: Get your head out of the sand before you get your butt kicked.



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