Baxalta Responds To Shire: Umm, No Thanks

Yesterday morning we noted Shire’s (SHPGunsolicited all-stock offer for recent Baxter (BAX) spinoff Baxalta (BXLT). The proposal offered to exchange any Baxalta shares for 0.1687 Shire ADRs, implying a value of $45.23 per Baxalta share. Of course, Shire promptly slumped over 5% so the effective price went down somewhat.

The company responded later in the afternoon with a press release confirming receipt of the offer. It also noted that the board and its advisors had reviewed the takeover proposal and didn’t think that it was ‘in the best interest’ of shareholders. Baxalta’s CEO Ludwig Hantson sent a formal letter to Flemming Ornskov, Shire’s CEO, basically saying the same thing. Here is an excerpt from the letter:

…Our board strongly believes that Baxalta’s independent global infrastructure and world-class manufacturing operations will provide an excellent platform to grow value for our shareholders.  As a new, publicly-traded entity only since July 1, we are just in the initial stages of implementing our growth strategy as a standalone company and our stock has not yet achieved a price level that appropriately reflects the company’s value and prospects.  A transaction at the exchange ratio you proposed significantly understates Baxalta’s true value.

Moreover, we do not believe that a combination of our two companies would be strategically complementary, or that our respective product portfolios would benefit from such a combination.  And we do not think the combination would generate substantial operational or revenue synergies, which would be critical to any potential value creation for our shareholders.  Perhaps even more importantly, a transaction at this time would be severely disruptive to our young organization and the implementation of a wide variety of critical commercial, R&D, and operational initiatives and thus carries with it significant risks for our shareholders…

One of the key points in Mr. Hantson’s letter (made over and over and over) is that the company is only 5 weeks old and has not had a chance to execute on its strategy. They really have great plans to deliver tremendous value to shareholders, but there just hasn’t been enough time. Shire’s offer doesn’t take into account the coming gains which will occur after management executes.

There is something to that and the company could be playing up its relative newness to spook Shire shareholders. On the other hand, if Shire thinks there is a lot of potential in Baxalta, it would be better to pounce now before the market and Wall Street really has a chance to get to know the company. I am sure there will be plenty of Baxter shareholders that ended up with Baxalta shares who couldn’t be happier that the company attracted a premium bid. Heck, Baxter still owns a stake in the company and they may be happy for such a quick monetization (or not).

The WSJ also notes that the move could be an attempt by Shire to take itself out of the crosshairs. Eat or be eaten, right? Shire fought off a buyout attempt by AbbVie (ABBV) last year and that process led to strong gains in its stock price which it has since held onto. It’s somewhat ironic then that Shire is now planning on using those pumped up shares as currency in this unwanted transaction.

Baxalta has hired a number of advisors including Goldman and Citi to defend itself so this situation should only get more entertaining as time goes by.

Disclosure: Author holds no position in any stock mentioned.