Deal Reporter
• No dialogue since public offer
• Dispute over market valuation
Baxalta (NYSE:BXLT) and Shire (LON:SHP) are at odds over the Irish pharma company's unsolicited USD 30bn bid, two sources familiar with the situation said.
Deerfield, Illinois-based Baxalta is not resistant to a sale, but Shire's announced offer will not break the impasse, one of the sources familiar said.
This source familiar said shareholders that Baxalta has met with have indicated they believe its board made the right decision to reject Shire’s offer.
Last week, Shire revealed a stock offer to acquire Baxalta for USD 30bn, a 36% premium to the target's share price the day prior. Baxalta subsequently rejected the offer.
Shire is frustrated with Baxalta’s unwillingness to engage and disclose a valuation it would entertain, the second source familiar said.
The existing Shire offer is not “close enough” on valuation to warrant an engagement with Baxalta, the first source familiar said. He said that Baxalta's board, like any company's board of directors, is focused on fetching the best value for its shareholders.
The UK Sunday Times has reported that Shire is likely to enter takeover negotiations with Baxalta within the next few days. Talks between Baxalta’s major shareholders and Shire CEO Flemming Ornskov have so far made good progress and the two companies could now make initial contact, the report claimed.
Both sources, however, said that neither company has been engaged in any dialogue since Shire took its offer public. Shire did not offer “anything new” that would make the Baxalta board change its mind about the offer, the first source said.
Baxalta, as a new spun-out company, was hoping that after its debut it would find new long-term investors, different from Baxter International’s (NYSE:BAX) shareholder base, the first source familiar said. Also, there may be an uplift in its valuation over time. Shire made an opportunistic move at an artificially low price, “far away from even normal trading price and even further away from the change of control premium price,” he added.
On a call on Monday organized by Cowen & Company, Baxalta CEO Ludwig Hantson said Shire’s proposal “as of today is not the USD 45 per share they are asserting, but given the overall downward pressure on its share price, this morning’s value is more like USD 42 per share, a modest 27% premium off an unseasoned equity price.”
The implied value of Shire’s proposal is “no different from what we think we can achieve on our own in the next six to 12 months, and our investors and analysts agree. Many investors see value well north of Shire’s proposal without any of the risk inherent in taking Shire stock or giving away the control premium that our shareholders can enjoy in the future,” Hantson said.
Baxalta’s assertion that the company has traded only for a short period of time is not the best argument to make, the second source familiar said. He said the market already knew the valuation of the pharma portfolio when it was part of Baxter. Baxalta officially separated from Baxter on 1 July in a tax-free spinoff. Just one day later, Shire requested a meeting with Baxalta to discuss a merger opportunity.
“Everyone knows the company and its appropriate valuation. It’s just a huge song and dance,’’ the second source said.
Baxalta’s board and management is not at all shut off to the idea of objectively considering any offer that is compelling, either from Shire or any other suitor, the first source familiar said. He declined to specify a fair valuation for the company.
To suggest that Baxalta board is not willing to listen to a good offer is a wrong assertion to make, the same source said, but, at the same time, Baxalta is not interested in giving “people access to information without a good offer” on the table.
Baxalta, the first source familiar said, was surprised by Shire CEO’s aggressive move to go public with its one-and-only offer so far.
As a result, Ornskov has created a risk for himself by drawing the attention of other possible interested parties, he added. Last year the Shire's CEO did not cave in to AbbVie’s (NYSE:ABBV) overtures until the valuation was right, the first source familiar pointed out. AbbVie subsequently terminated the USD 54bn Shire deal after the US Treasury Department made inversion deals harder to pull off.
Shire, however, is unlikely to bid against itself unless the company is able to engage with Baxalta and figure out a valuation that could appeal to the target, the second source familiar said. At the same time, Shire will be disciplined in the interest of its own shareholders, he cautioned.
Still, Baxalta believes at this point it is being undervalued, the first source familiar argued, noting that the company’s standalone prospects would unlock more value for its shareholders than the current Shire offer.
Baxalta's objective is to launch 20 new products by 2020, with more than USD 2.5bn of risk-adjusted sales, Hantson said on the call on Monday. “We have a great platform as an independent enterprise," he said.