They say that 50% of marriages end in divorce, but it hasn’t stopped a raft of pharma companies getting hitched this year.
In the US especially, M&A has been a hot topic with Celgene offering US$7.2bn for Receptos, Pfizer recently receiving European approval for its US$16bn takeover of Hospira and, biggest of the lot, Teva tying up Allergen for US$40bn.
In the UK, Hikma got in on the act, acquiring Boehringer Ingelheim’s Roxane Laboratories for US$2.6bn.
The latest company to wade in is Shire (LON:SHP), which yesterday made a US$30bn bid for US rival Baxalta, which was spun-off from Baxter last month.
Shire, which made one of the first big acquisitions this year with the purchase of NPS Pharma for US$5.2bn, looks to be facing an uphill battle.
Baxalta’s board has already shot down the deal as it has refused to enter into talks on the offer.
But Shire isn’t about to bow out without a fight.
“On July 31, weeks after receiving our written proposal and without any meaningful interaction, you stated that you had concluded it was not a basis for discussions,” the company said.
“As a result, you have left us with no choice but to make our proposal known to your shareholders.”
And it wouldn’t pursue the deal if it didn’t mean to see it through, as Shire knows the cost of a failed merger.
Last year, Abbvie offered US$51.5bn to acquire the pharma giant after a US$46.5bn initial offer was turned down, but changes in US tax laws meant ultimately the deal broke down.
Accordingly, Abbvie had to pay a breakup fee of US$1.64bn to Shire, which the UK-listed company received earlier this year.
But is the Baxalta deal worth it?
Analysts at Jeffries seem to think so. The broker said: “From a financial perspective, we see the Shire-Baxalta merger as a transaction that could potentially generate low double digit accretion after full integration.”
It added that recent acquisitions, including Meritage, which Shire bought this year, show the company’s ability to add revenue and operating synergies despite some potential “head-winds.”
The deal would make the pharma company larger than fellow FTSE 100 company AstraZeneca (LON:AZN), a move that would have been unthinkable just a few years back.
Five years ago, the company was making revenue of less than US$3.5bn, while Astra’s was above US$33bn.
The companies are not as far apart now, with Astra forecast to generate sales of around US$25bn this year, while Flemming Ornovsk, chief executive of Shire, reckons combined revenues of Shire and Baxalta could top US$20bn.
Others, including JP Morgan, aren’t so sure.
“We don’t see Baxalta as a great strategic fit” the blue-chip broker said, adding “Baxalta's focus on haemophilia increases Shire's rare disease exposure, but we don't see increased exposure to the highly competitive haemophilia market as desirable.”
It notes the competition in the sector, with new products from agents like Roche’s ACE910 &/or Biomarin's Gene Therapy as problems for Baxalta.
So will a deal get done?
It’s possible, but there are a number of hurdles to clear and JP Morgan doesn’t see it happening without an increased offer.
“With the US$30bn Shire bid having been rejected by Baxalta management, Shire may end up having to raise their offer to get the deal done.”
Meanwhile, Jefferies doesn’t see the deal working unless a common ground is found.
Baxalta is believed to be structured with a number of bid defence strategies, including a staggered board which could make a successful hostile takeover difficult.
“A definitive friendly merger agreement between the two companies is likely the only way this transaction gets done.”