$30 bn Deal - Shire Proposes Combination With Baxalta to Create the Leading Global Biotech Company Focused on Rare Diseases

Press Release: Shire Proposes Combination With Baxalta to Create the Leading Global Biotech Company Focused on Rare Diseases

Shire Proposes Combination With Baxalta to Create the Leading Global Biotech Company Focused on Rare Diseases

PR Newswire

DUBLIN, August 4, 2015

DUBLIN, August 4, 2015 /PRNewswire/ --

Strong strategic fit and industry-leading portfolio of combined company is projected to deliver immediate value creation and generate $20 billion in product sales by 2020

-- Complementary capabilities create leading platform for growth, with over

30 planned product launches and the industry's largest rare diseases portfolio with 50-plus projects

 

-- Transaction expected to generate double-digit top-line growth; strong

returns and attractive value creation; breakeven to Non GAAP EPS in year one with accretion thereafter

 

-- Combination offers significant operating synergy potential and a

compelling tax profile (projected 16%-17% combined Non GAAP effective tax

 

rate by 2017), generating an IRR in excess of 10%

 

-- All-stock transaction of approximately $30 billion represents immediate

value creation for Baxalta shareholders through a substantial premium of 36% and allows for participation in future upside

 

-- Shire urges Baxalta to engage in a negotiated transaction

Shire plc (LSE: SHP, NASDAQ: SHPG) today confirms that it made a proposal to Baxalta Incorporated (NYSE: BXLT) on July 10, 2015, to combine the companies in an all-stock transaction pursuant to which Baxalta shareholders would receive, for each Baxalta share, 0.1687 Shire ADRs. The proposal implies a value of $45.23 per Baxalta share and represents a significant premium of 36% over Baxalta's stock price as of August 3, 2015. Baxalta has declined to engage in substantive discussions regarding the proposal.

The proposed combination would generate immediate shareholder value and accelerate the growth plans of both Shire and Baxalta. The combined entity would be the global leader in rare diseases with multiple billion-dollar franchises in high-value therapeutic areas with substantial barriers to entry. Together, Baxalta and Shire are projected to deliver product sales of $20 billion in 2020, advancing the combined pipeline and bringing innovative new therapies to market for patients with rare, often life-threatening, diseases and conditions.

The proposed transaction would be structured as an all-stock transaction to maintain the tax-free nature of Baxalta's July 1, 2015, spinoff from Baxter. Baxalta shareholders would own approximately 37% of the combined Shire group.

Promptly after the close, Shire would initiate a share buy-back program to repurchase, within two years, up to 13% of the combined post-transaction shares outstanding, enhancing the earnings accretion of the transaction while maintaining financial flexibility and an investment-grade credit profile.

Flemming Ornskov, Chief Executive Officer of Shire said: "We believe the proposed combination of Shire and Baxalta would be strategically and financially attractive for both of our companies, accelerating our respective growth ambitions and creating the leading global biotech company in rare diseases. The combined entity would have the opportunity to create significant shareholder value in one of the most attractive and fastest growing segments in healthcare. Together, the companies would be projected to deliver $20 billion in product sales by 2020, with the financial and operational firepower to fuel further innovation and growth in rare diseases. It is our strong preference to immediately enter into a negotiated transaction to explore the full potential of the proposed combination and finalize the terms of an agreement."

Susan Kilsby, Chairman of the Board of Shire, said: "Our Board unanimously supports this combination with Baxalta. Following thorough analysis and discussion, our Board concluded that this proposed transaction will deliver significant value for shareholders. We urge Baxalta to engage with us to create a stronger combined company that will benefit all of our stakeholders."

Proposed combination creates the global leader in rare diseases with compelling financials and strong outlook

The global leader in rare diseases

-- $20 billion in product sales by 2020 ("20x20")

 

-- Multiple $1 billion plus high-value rare disease franchises with

substantial barriers to entry

 

-- Complementary expertise in rare diseases R&D, commercial, and

manufacturing, supported by global scale and infrastructure Compelling financial profile and value creation

-- Projected double-digit top-line growth

 

-- Substantial operating synergies

 

-- Accretive to Non GAAP earnings; breakeven in year one, with accretion

thereafter, supported by a share buyback program

 

-- Attractive sustainable returns including IRR in excess of 10% Strong future outlook

-- More than 30 new product launches planned with approximately $5 billion

incremental sales potential by 2020

 

-- Strong balance sheet and robust pro forma cash flow support future

organic growth and M&A

Evercore and Morgan Stanley are acting as financial advisors to Shire and Ropes & Gray LLP and Slaughter and May are acting as legal counsel.

Below is the text of a letter sent to the Chief Executive Officer of Baxalta on August 4, 2015.

SUBJECT TO CONTRACT

August 4, 2015

Ludwig N. Hantson, Ph.D.

President and Chief Executive Officer

Baxalta Incorporated

One Baxter Parkway

Deerfield, IL 60015

Proposed Combination of Shire plc and Baxalta Incorporated

Dear Ludwig,

We continue to believe that a combination of Shire and Baxalta offers a compelling opportunity that provides significant benefits to our respective shareholders, employees, and the patients and physicians that we both serve.

We have sought to engage with you regarding such a combination since early July. Other than a brief meeting on July 10th at which we outlined our proposal and its benefits, your lack of engagement has been surprising. On July 31st, weeks after receiving our written proposal and without any meaningful interaction, you stated that you had concluded it was not a basis for discussions. 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.

As we have consistently articulated, we believe that a combination of our businesses in an all-stock transaction provides your shareholders with both substantial current value and long-term upside. A combination with Shire also fully aligns with your articulated vision to become a leading Rare / Orphan Diseases company. The benefits of our proposal include:

-- 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 sizeable share buy-back program to enhance the

capital structure and further improve the per share earnings profile of

the combined company.

Our 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.

These represent very attractive metrics relative to other all-stock transactions of this size.

In addition, Baxalta shareholders would benefit from significant further upside through their participation in the substantial synergies arising from the combination. 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.

Because the total consideration will be paid in our ADRs, we believe the tax-free nature of the separation of Baxalta from Baxter will not be jeopardized, and you will be able to meet your related obligations to Baxter under the separation agreements. To that end, we have not discussed this potential transaction with Baxter, and we waited until the separation occurred before contacting you.

We have engaged and have been working closely with Evercore Group L.L.C. and Morgan Stanley & Co as financial advisors, and Ropes & Gray LLP and Slaughter and May as legal counsel. As explained in our July 10th letter, we have completed an extensive analysis of Baxalta and have carefully considered the proposed combination on the basis of publicly available information. We do not believe that there are any regulatory or other impediments to consummation of the proposed transaction. We believe we could complete our confirmatory due diligence and finalize the terms of a combination expeditiously. The proposed transaction is subject to such matters and satisfaction of customary closing conditions.

Given the substantial value represented by our proposal and the compelling benefits of a combination, we urge you to engage with us without any further delay.

Sincerely,

Flemming Ornskov

Chief Executive Officer

Shire plc

LIVE CONFERENCE CALL FOR INVESTORS:

Flemming Ornskov, MD, MPH, Chief Executive Officer, will host the investor and analyst conference call at 1:30 PM BST/8:30 AM EDT.

The details of the conference call are as follows:

UK dial in: 0808 237 0030 or 0203 139 4830

US dial in: 1 866 928 7517 or 1 718 873 9077

International Access Numbers: Click here

Password/Conf ID: 25841912#

Live Webcast: Click here Replay:

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