High values force Shire to look outside Europe

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The Independent Online

Shire Pharmaceuticals, the UK's third-largest drugs group, has abandoned plans to make acquisitions in Europe because of the high market valuations of target companies and the terms being demanded by privately-owned groups.

Shire Pharmaceuticals, the UK's third-largest drugs group, has abandoned plans to make acquisitions in Europe because of the high market valuations of target companies and the terms being demanded by privately-owned groups.

Dr Rolf Stahel, Shire's chief executive, said Shire was looking for companies that were delivering, or had the potential to deliver, double-digit earnings growth. Such opportunities were no longer available at sensible prices, he said.

"There's perhaps one company I would like to get my hands on, but it's unlikely we will grow in Europe through mergers and acquisitions. The only real opportunity in Europe is to carve out a division of a larger group. I'm not optimistic about doing a deal in Europe right now," Dr Stahel said.

Privately-owned companies would enter talks only if Shire agreed to defer restructuring for two years if a deal went ahead. Some of the companies Shire was previously interested in had poor margins, but were also the main source of employment in the local area.

Angus Russell, the finance director, said: "Bankers bring us ideas, but we've been through all of them. We've looked at about 150 deals in the last year."

The lack of opportunities in Europe has forced Shire to look further afield. In December, Shire agreed to buy BioChem Pharma, a Canadian rival, in a deal that will reduce its dependence on its lead drug, Adderall, the hyperactivity treatment.

Shire's share price nosedived 16 per cent when the deal was announced, as BioChem was an unknown quantity to UK and US investment banks. It has emerged that Shire had planned to brief its own brokers on the deal prior to the announcement, but was forced to sign the merger agreement with BioChem before it could do so.

Talks between the groups had earlier collapsed after BioChem entered exclusive negotiations with a last-minute rival bidder. However, Shire was allowed back into talks on condition it signed quickly. Under Canadian merger and acquisition law, company directors are obliged to recommend merger deals with the highest headline value, regardless of the strategic merits of alternative proposals.

Mr Russell said: "We managed to dislodge the rival company, on condition we signed on Sunday 10 December. We would rather have signed on the Wednesday. The deal was always a double-edged sword as BioChem was undervalued but also under-researched."

Shire had planned for its broker to publish a research note explaining the merits of the deal immediately after it was announced to the Stock Exchange. The share price fall immediately jeopardised the deal, which was structured to give BioChem investors extra shares if Shire's stock price fell outside a prescribed range.

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