Cantillon: Shire takeover of Baxalta fails to impress shareholders

Flemming Ornskov had reason to be pleased yesterday. The Shire CEO's six-month pursuit of rival Baxalta appears finally to have reached a successful conclusion with the announcement that the companies have agreed a $32 billion takeover.

If completed, the deal will make Baxalta an extremely short-lived entity. It was spun off from parent Baxter in July last year, just a month before Shire first approached.

In its short life, it has also attracted interest from Abbvie, which like Baxalta was the biopharma spin-off of a more established parent, in its case Abbott Laboratories.

The Abbvie deal foundered on the threat of US intervention as the Obama administration sought to fend off a wave of corporate inversion. Shire, already Dublin-based, had no such problem.

However, initial market reaction to the announcement was decidedly negative, with Shire shares sliding 8 per cent in trade yesterday. Two things appear to concern analysts. First, there are some extremely ambitious targets for savings from the merger. Second, and related to the first, it is difficult to see how the coming together of these two quite different businesses can accelerate growth for the combined entity.

It is instructive that a significant cash payment as part of the takeover terms was seen as the factor that got the deal over the line.

Back in August, Shire was offering $45.23 a share – a total deal price of $30 billion.

The new terms are just 34 US cents better for Baxalta shareholders, but 40 per cent of the payment will be upfront and in cash – $18 a share.

Regardless of Ornskov’s optimism about the deal – and the prospects of avoiding a potentially crippling US tax bill – it seems investors in Baxalta weren’t altogether taken with his vision.