Shire Goes After Baxalta

Shire has made an unsolicited bid worth roughly $30 billion for Baxalta, the specialty pharmaceuticals company spun-off last month from Baxter. The deal is designed to create a global leader in rare diseases, while also bringing tax savings to Baxalta’s revenues.

Shire first approached Baxalta on July 10 with a proposal for the all-stock deal that values the Deerfield, Ill.-based firm’s shares at $45.23, but was rebuffed. In a letter to Baxalta chief executive officer Ludwig N. Hantson, Shire’s CEO Flemming Ornskov said that Hantson’s “lack of engagement has been surprising,” adding that, “you have left us with no choice but to make our proposal known to your shareholders.”

Currently, each company has roughly $6 billion in annual sales. According to Shire, by 2020 the combined companies could achieve $20 billion in sales, 65% of which would come from rare disease treatments. About $5 billion of that sales growth would come from new products.

But the deal could also bring cost savings. The combined company would wield more buying power with contract manufacturers, while also streamlining research operations. Moreover, the deal would ease taxes on Baxalta’s earnings. Because Shire is with headquarters in the U.K., the combined company is expected to see a tax rate of 16-17% in 2017 instead of Baxalta’s latest rate of about 23%.

Last year, AbbVie agreed to buy Shire for $54 billion in cash and stock, a deal motivated in large part by the possibility of shifting its headquarters to the U.K. to lower its tax base. But changes to the U.S. tax code to discourage such deals—known as “inversions”—prompted AbbVie to abandon its bid.

Shire scored a $1.65 billion break-up fee from AbbVie that has helped fuel acquisitions, which are intended to help Shire achieve its goal of hitting $10 billion in sales by 2020. So far this year, Shire has bought NPS Pharmaceuticals, adding a marketed drug for a rare disease called short bowel syndrome; rare gastrointestinal disease firm Meritage Pharma, and eye disease-focused Foresight Biotherapeutics.