Shire sweetens the pot to bring $32bn deal for Baxalta over the line

Irish drug giant’s long-standing plan to acquire US rival – and lower its tax bill – is finally sealed thanks to beefed-up cash offer

Ludwig Hantson, centre, CEO of Baxalta, celebrates the company's IPO after ringing the opening bell above the floor of the New York Stock Exchange in July last year (Corbis)

The drugs maker Shire yesterday clinched a $32bn (£22bn) takeover of US rival Baxalta after sweetening the deal with a bumper cash component despite fears such a move would leave it with a huge tax bill. The Irish-based company, led by Flemming Ornskov, will become the world’s biggest maker of treatments for rare diseases after finally winning its pursuit of Baxalta following an earlier approach in August which was rebuffed.

The deal is the largest ever struck by FTSE 100 listed Shire and represents the company’s fourth takeover in the past 12 months, putting it among the world’s 20 biggest drug makers.

Shire will pay Baxalta shareholders $45.57 per share – a 37.5 per cent premium to the share price before news of the deal broke in August.

A total of $18 will be in cash and the rest in shares, equivalent to 0.4182 of Shire’s American-listed shares for every Baxalta share.

The split breaks down to about 40 per cent cash, higher than the 25 per cent many expected. Mr Ornskov said: “We’ve become comfortable introducing cash to the deal. Shares and cash are more attractive than the initial deal and we are very sure it will meet the requirements of shareholders on the Baxalta and Shire sides.”

Mr Ornskov said the deal was “not about tax inversion” despite Shire’s acquisition helping Baxalta lower its tax rate from 23 per cent to 16 per cent, rising to 17 per cent by next year. Shire is domiciled in Ireland, which has lower corporation tax than the US.

Shire was itself the subject of a tax-inversion-led bid last year when US giant AbbVie agreed to buy it in a £32bn takeover. Despite reaching an agreement, AbbVie pulled the plug when the US Congress tightened the rules on inversion deals, making them less appealing.

Shire was given a break-up fee to make up for the collapse of the deal.

Concerns have also been raised about whether Shire would have to pay a $10bn tax penalty if it bought Baxalta, due to the tax-free status of Baxalta.

A $45.23 offer was made up entirely of shares in August because it was thought including cash in the deal would trigger a tax payment.

Baxalta was spun out of larger company, Baxter International, last July on a tax free basis but it was feared using cash in the deal would have jepoardised its tax free status in the US.

Mr Ornskov added: “Preserving the tax free status was a key component for us. We have done significant diligence and have significant external support. We are confident we will preserve the tax free nature of the spin-off.”

The tie-up will lead to cost savings of about $500m over the next three years as the company takes out duplicated functions such as head offices and other backroom staff.

Pharmaceutical mergers and acquisitions have boomed over the past two years and the deal indicates no let-up in the pace of activity. Last year was a record breaker for deals in the pharmaceuticals, medical and biotech sector, according to Mergermarket figures, with 1,353 deals completed worth $574.5bn – a 51.1 per cent increased on the number that took place in 2014.