Shire plc Shire Proposes Combination With Baxalta

 
TIDMSHP 
 
SHIRE PROPOSES COMBINATION WITH BAXALTA TO CREATE THE LEADING GLOBAL BIOTECH 
COMPANY FOCUSED ON RARE DISEASES 
 
Strong strategic fit and industry-leading portfolio of combined company is 
projected to deliver immediate value creation and generate $20 billion in 
product sales by 2020 
 
  * Complementary capabilities create leading platform for growth, with over 30 
    planned product launches and the industry's largest rare diseases portfolio 
    with 50-plus projects 
 
  * Transaction expected to generate double-digit top-line growth; strong 
    returns and attractive value creation; breakeven to Non GAAP EPS in year 
    one with accretion thereafter 
 
  * Combination offers significant operating synergy potential and a compelling 
    tax profile (projected 16%-17% combined Non GAAP effective tax rate by 
    2017), generating an IRR in excess of 10% 
 
  * All-stock transaction of approximately $30 billion represents immediate 
    value creation for Baxalta shareholders through a substantial premium of 
    36% and allows for participation in future upside 
 
  * Shire urges Baxalta to engage in a negotiated transaction 
 
Dublin, Ireland  - August 4, 2015 - Shire plc (LSE: SHP, NASDAQ: SHPG) today 
confirms that it made a proposal to Baxalta Incorporated (NYSE: BXLT) on July 
10, 2015, to combine the companies in an all-stock transaction pursuant to 
which Baxalta shareholders would receive, for each Baxalta share, 0.1687 Shire 
ADRs. The proposal implies a value of $45.23 per Baxalta share and represents a 
significant premium of 36% over Baxalta's stock price as of August 3, 2015. 
Baxalta has declined to engage in substantive discussions regarding the 
proposal. 
 
The proposed combination would generate immediate shareholder value and 
accelerate the growth plans of both Shire and Baxalta. The combined entity 
would be the global leader in rare diseases with multiple billion-dollar 
franchises in high-value therapeutic areas with substantial barriers to entry. 
Together, Baxalta and Shire are projected to deliver product sales of $20 
billion in 2020, advancing the combined pipeline and bringing innovative new 
therapies to market for patients with rare, often life-threatening, diseases 
and conditions. 
 
The proposed transaction would be structured as an all-stock transaction to 
maintain the tax-free nature of Baxalta's July 1, 2015, spinoff from Baxter. 
Baxalta shareholders would own approximately 37% of the combined Shire group. 
 
Promptly after the close, Shire would initiate a share buy-back program to 
repurchase, within two years, up to 13% of the combined post-transaction shares 
outstanding, enhancing the earnings accretion of the transaction while 
maintaining financial flexibility and an investment-grade credit profile. 
 
Flemming Ornskov, Chief Executive Officer of Shire said:  "We believe the 
proposed combination of Shire and Baxalta would be strategically and 
financially attractive for both of our companies, accelerating our respective 
growth ambitions and creating the leading global biotech company in rare 
diseases. The combined entity would have the opportunity to create significant 
shareholder value in one of the most attractive and fastest growing segments in 
healthcare. Together, the companies would be projected to deliver $20 billion 
in product sales by 2020, with the financial and operational firepower to fuel 
further innovation and growth in rare diseases. It is our strong preference to 
immediately enter into a negotiated transaction to explore the full potential 
of the proposed combination and finalize the terms of an agreement." 
 
Susan Kilsby, Chairman of the Board of Shire, said: "Our Board unanimously 
supports this combination with Baxalta. Following thorough analysis and 
discussion, our Board concluded that this proposed transaction will deliver 
significant value for shareholders. We urge Baxalta to engage with us to create 
a stronger combined company that will benefit all of our stakeholders." 
 
Proposed combination creates the global leader in rare diseases with compelling 
financials and strong outlook 
 
The global leader in rare diseases 
 
  * $20 billion in product sales by 2020 ("20x20") 
  * Multiple $1 billion plus high-value rare disease franchises with 
    substantial barriers to entry 
  * Complementary expertise in rare diseases R&D, commercial, and 
    manufacturing, supported by global scale and infrastructure 
 
Compelling financial profile and value creation 
 
  * Projected double-digit top-line growth 
  * Substantial operating synergies 
  * Accretive to Non GAAP earnings; breakeven in year one, with accretion 
    thereafter, supported by a share buyback program 
  * Attractive sustainable returns including IRR in excess of 10% 
 
Strong future outlook 
 
  * More than 30 new product launches planned with approximately $5 billion 
    incremental sales potential by 2020 
  * Strong balance sheet and robust pro forma cash flow support future organic 
    growth and M&A 
 
Evercore and Morgan Stanley are acting as financial advisors to Shire and Ropes 
& Gray LLP and Slaughter and May are acting as legal counsel. 
 
Below is the text of a letter sent to the Chief Executive Officer of Baxalta on 
August 4, 2015. 
 
SUBJECT TO CONTRACT 
 
August 4, 2015 
 
Ludwig N. Hantson, Ph.D. 
 
President and Chief Executive Officer 
 
Baxalta Incorporated 
 
One Baxter Parkway 
 
Deerfield, IL 60015 
 
Proposed Combination of Shire plc and Baxalta Incorporated 
 
Dear Ludwig, 
 
We continue to believe that a combination of Shire and Baxalta offers a 
compelling opportunity that provides significant benefits to our respective 
shareholders, employees, and the patients and physicians that we both serve. 
 
We have sought to engage with you regarding such a combination since early 
July. Other than a brief meeting on July 10th at which we outlined our proposal 
and its benefits, your lack of engagement has been surprising. On July 31st, 
weeks after receiving our written proposal and without any meaningful 
interaction, you stated that you had concluded it was not a basis for 
discussions. As a result, you have left us with no choice but to make our 
proposal known to your shareholders. We believe they deserve an opportunity to 
consider it. 
 
As we have consistently articulated, we believe that a combination of our 
businesses in an all-stock transaction provides your shareholders with both 
substantial current value and long-term upside. A combination with Shire also 
fully aligns with your articulated vision to become a leading Rare / Orphan 
Diseases company. The benefits of our proposal include: 
 
  * Significantly accelerating the value and mitigating the risk of Baxalta's 
    standalone strategy while providing a substantial immediate premium to 
    Baxalta's current share price and participation in future upside; 
  * Strong expected operating synergies as well as benefits from our tax 
    structure to drive meaningful earnings accretion and provide an enhanced 
    growth profile relative to the standalone Baxalta strategy; and 
  * A stronger balance sheet that would provide financial flexibility and the 
    ability to launch a sizeable share buy-back program to enhance the capital 
    structure and further improve the per share earnings profile of the 
    combined company. 
 
Our proposal of an all-stock combination of 0.1687 Shire ADRs for each Baxalta 
share represents: 
 
 
  * a value of $45.23 per Baxalta share based on Shire's August 3, 2015 closing 
    price; 
  * a total enterprise value of $33.9 billion; 
  * a 36% premium to Baxalta's closing share price on August 3, 2015; and 
  * a 15x multiple of last twelve months EBITDA as of March 31, 2015. 
 
These represent very attractive metrics relative to other all-stock 
transactions of this size. 
 
In addition, Baxalta shareholders would benefit from significant further upside 
through their participation in the substantial synergies arising from the 
combination. Assuming 680 million outstanding shares of Baxalta common stock on 
a fully diluted basis, Baxalta's shareholders would hold approximately 37% of 
the combined company. 
 
Because the total consideration will be paid in our ADRs, we believe the 
tax-free nature of the separation of Baxalta from Baxter will not be 
jeopardized, and you will be able to meet your related obligations to Baxter 
under the separation agreements. To that end, we have not discussed this 
potential transaction with Baxter, and we waited until the separation occurred 
before contacting you. 
 
We have engaged and have been working closely with Evercore Group L.L.C. and 
Morgan Stanley & Co as financial advisors, and Ropes & Gray LLP and Slaughter 
and May as legal counsel. As explained in our July 10th letter, we have 
completed an extensive analysis of Baxalta and have carefully considered the 
proposed combination on the basis of publicly available information. We do not 
believe that there are any regulatory or other impediments to consummation of 
the proposed transaction. We believe we could complete our confirmatory due 
diligence and finalize the terms of a combination expeditiously. The proposed 
transaction is subject to such matters and satisfaction of customary closing 
conditions. 
 
Given the substantial value represented by our proposal and the compelling 
benefits of a combination, we urge you to engage with us without any further 
delay. 
 
Sincerely, 
 
Flemming Ornskov 
 
Chief Executive Officer 
 
Shire plc 
 
LIVE CONFERENCE CALL FOR INVESTORS: 
 
Flemming Ornskov, MD, MPH, Chief Executive Officer, will host the investor and 
analyst conference call at 1:30 PM BST/8:30 AM EDT. 
 
The details of the conference call are as follows: 
 
UK dial in: 0808 237 0030 or 0203 139 4830 
 
US dial in: 1 866 928 7517 or 1 718 873 9077 
 
International Access Numbers: Click here 
 
Password/Conf ID: 25841912# 
 
Live Webcast: Click here 
 
Replay: 
 
A replay of the presentation will be available for two weeks by phone and by 
webcast for three months.  Details can be found on our Investor Relations 
website http://investors.shire.com/. 
 
FOR FURTHER INFORMATION PLEASE CONTACT: 
 
Investor Relations 
 
Sarah Elton-Farr            [e-mail]                [phone] 
 
Media 
 
Michele Galen               [e-mail]                    [phone] 
 
Gwen Fisher                 [e-mail]                   [phone] 
 
Brooke Clarke               [e-mail]                  [phone] 
 
FTI Consulting (Media Adviser to the Company) 
 
Ben Atwell (London)         [e-mail]        [phone] 
 
David B. Roady (New York)   [e-mail]       [phone] 
 
Robert Stanislaro (New      [e-mail] [phone] 
York) 
 
Evercore (Financial Adviser to the Company) 
 
Francois Maisonrouge       [e-mail]              [phone] 
 
Morgan Stanley (Financial Adviser and Corporate Broker to the Company) 
 
Michele Colocci            [e-mail]     [phone] 
 
Peter Moorhouse            [e-mail]     [phone] 
 
Deutsche Bank (Corporate Broker to the Company) 
 
Ben Lawrence               [e-mail]                   [phone] 
 
 
 
 
 
Evercore Partners International LLP ("Evercore"), which is authorised and 
regulated by the Financial Conduct Authority in the United Kingdom, is acting 
as financial adviser to Shire and no-one else in connection with the matters 
referred to in this announcement and will not be responsible to anyone other 
than Shire for providing the protections afforded to clients of Evercore or for 
providing advice in relation to the contents of this announcement or any other 
matters referred to herein. 
 
Morgan Stanley & Co. International plc ("Morgan Stanley"), which is authorised 
by the Prudential Regulation Authority and regulated by the Financial Conduct 
Authority and the Prudential Regulation Authority in the United Kingdom, is 
acting as financial adviser to Shire and no one else in connection with the 
matters referred to in this announcement. In connection with such matters, 
Morgan Stanley, its affiliates and its and their respective directors, 
officers, employees and agents will not regard any other person as their 
client, nor will they be responsible to any other person other than Shire for 
providing the protections afforded to their clients or for providing advice in 
connection with the contents of this announcement or any other matter referred 
to herein. 
 
Deutsche Bank AG is authorised under German Banking Law (competent authority: 
European Central Bank) and, in the United Kingdom, by the Prudential Regulation 
Authority. It is subject to supervision by the European Central Bank and by 
BaFin, Germany's Federal Financial Supervisory Authority, and is subject to 
limited regulation in the United Kingdom by the Prudential Regulation Authority 
and Financial Conduct Authority. Details about the extent of its authorisation 
and regulation by the Prudential Regulation Authority, and regulation by the 
Financial Conduct Authority are available on request. Deutsche Bank AG, acting 
through its London branch ("DB"), is acting as a corporate broker to Shire plc 
and no other person in connection with the matters referred to in this 
announcement. DB will not be responsible to any person other than Shire plc for 
providing any of the protections afforded to clients of DB, nor for providing 
any advice in relation to the matters referred to herein. Without limiting a 
person's liability for fraud, neither DB nor any of its subsidiary 
undertakings, branches or affiliates nor any of its or their respective 
directors, officers, representatives, employees, advisers or agents owes or 
accepts any duty, liability or responsibility whatsoever (whether direct or 
indirect, whether in contract, in tort, under statute or otherwise) to any 
person who is not a client of DB in connection with this announcement, any 
statement contained herein or otherwise. 
 
FORWARD-LOOKING STATEMENTS 
 
Statements included herein that are not historical facts, including without 
limitation statements concerning our proposed business combination with Baxalta 
Incorporated ("Baxalta"), and the timing and benefits thereof, including our 
20x20 ambition that targets $20 billion in combined product sales by 2020, as 
well as other targets for future financial results, capital structure, 
performance and sustainability of a combined company, and a combined company's 
future strategy, plans, objectives, expectations and intentions, are 
forward-looking statements. Such forward-looking statements involve a number of 
risks and uncertainties and are subject to change at any time. In the event 
such risks or uncertainties materialize, Shire could be materially adversely 
affected. These risks and uncertainties include, but are not limited to, the 
following: 
 
  * Baxalta will refuse to negotiate with Shire, and the parties will be 
    unsuccessful in negotiating a transaction; 
  * if a transaction is negotiated, the transaction may not be completed, due 
    to failure of closing conditions, including any shareholder approvals; 
  * the businesses may not be integrated successfully, that such integration 
    may be more difficult, time-consuming or costly than expected, or that the 
    expected benefits of the transaction may not be realized; 
  * disruption from the proposed transaction makes it more difficult to conduct 
    business as usual or maintain relationships with patients, physicians, 
    employees or suppliers; 
  * the combined company may not achieve some or all of the anticipated 
    benefits of Baxalta's spin-off from Baxter International, Inc. ("Baxter") 
    and the proposed transaction may have an adverse impact on Baxalta's 
    existing arrangements with Baxter; 
  * the failure to achieve the strategic objectives with respect to the 
    proposed combination with Baxalta adversely affects the combined company's 
    financial condition and results of operations; 
  * products and product candidates may not achieve commercial success; 
  * product sales from certain products, including ADDERALL XR and INTUNIV, are 
    subject to generic competition; 
  * the failure to obtain and maintain reimbursement, or an adequate level of 
    reimbursement, by third-party payers in a timely manner for the combined 
    company's products may adversely impact future revenues, financial 
    condition, and results of operations, particularly if there is systematic 
    pressure on pricing of products to treat rare diseases; 
  * supply chain or manufacturing disruptions may result in declines in revenue 
    for affected products and commercial traction from competitive; 
  * regulatory actions associated with product approvals or changes to 
    manufacturing sites, ingredients or manufacturing processes could lead to 
    significant delays, an increase in operating costs, lost product sales, an 
    interruption of research activities or the delay of new product launches; 
  * the successful development of the combined company's pre-commercial 
    products is highly uncertain and requires significant expenditures and 
    time, and these products may not receive regulatory approval; 
  * the actions of certain customers could affect the combined company's 
    ability to sell or market products profitably; 
  * investigations or enforcement action by regulatory authorities or law 
    enforcement agencies may result in significant legal costs and the payment 
    of substantial compensation or fines; 
  * adverse outcomes in legal matters and other disputes, including the 
    combined company's ability to enforce and defend patents and other 
    intellectual property rights required for its business, could have a 
    material adverse effect on the combined company's revenues, financial 
    condition or results of operations; 
  * the combined company may be unable to attract and/or retain the highly 
    skilled personnel needed to meet its strategic objectives; and 
  * other risks and uncertainties detailed from time to time in Shire's filings 
    with the Securities and Exchange Commission ("SEC"), including those risks 
    outlined in "Item 1A: Risk Factors" in Shire's Annual Report on Form 10-K 
    for the year ended December 31, 2014, which was filed with the SEC on 
    February 24, 2015, and Baxalta's filings with the SEC. 
 
All forward-looking statements attributable to us or any person acting on our 
behalf are expressly qualified in their entirety by this cautionary statement. 
Readers are cautioned not to place undue reliance on these forward-looking 
statements that speak only as of the date hereof. Except to the extent 
otherwise required by applicable law, we do not undertake any obligation to 
republish revised forward-looking statements to reflect events or circumstances 
after the date hereof or to reflect the occurrence of unanticipated events. 
 
Third Party-Sourced Information 
All information in this communication regarding Baxalta, including its 
businesses, operations and financial results, was obtained from public sources. 
While Shire has no knowledge that any such information is inaccurate or 
incomplete, Shire has not verified any of that information. 
 
Additional Information 
 
This communication does not constitute an offer to buy or solicitation of any 
offer to sell securities. This communication relates to a proposal which Shire 
has made for a business combination transaction with Baxalta. In furtherance of 
this proposal and subject to future developments, if Shire and Baxalta agree on 
a negotiated transaction, Shire and Baxalta may file one or more registration 
statements, tender offer statements, prospectuses, proxy statements or other 
documents with the SEC. This communication is not a substitute for any 
registration statement, prospectus, proxy statement or other document Shire and 
/or Baxalta may file with the SEC in connection with the proposed transaction. 
INVESTORS AND SECURITY HOLDERS OF SHIRE AND BAXALTA ARE URGED TO READ CAREFULLY 
THE REGISTRATION STATEMENT(S), TENDER OFFER STATEMENT(S), PROSPECTUS(ES), PROXY 
STATEMENT(S) AND OTHER DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE 
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT SHIRE, BALXALTA AND THE 
PROPOSED TRANSACTION. Investors and security holders may obtain free copies of 
these documents (when they are available) and other related documents filed 
with the SEC at the SEC's web site at www.sec.gov or by directing a request 
to Shire's Investor Relations department at Shire plc, Attention: Investor 
Relations, 300 Shire Way, Lexington, MA 02421 or to Shire's Investor Relations 
department at [phone] in the U.S. and [phone] in the UK or by 
email to [e-mail]. 
 
Certain Information Regarding Participants 
 
Shire and its directors and executive officers may be deemed participants in 
the solicitation of proxies in connection with the proposed transaction. You 
can find information about Shire's directors and executive officers 
in Shire's Annual Report on Form 10-K for the year ended December 31, 2014, 
which was filed with the SEC on February 24, 2015. Additional information 
regarding the special interests of these directors and executive officers in 
the proposed transaction will be included in one or more registration 
statements, tender offer statements, prospectuses, proxy statements or other 
documents filed with the SEC if any when they become available. You may obtain 
these documents (when they become available) free of charge at the SEC's web 
site at www.sec.gov and from Investor Relations at Shire as described above. 
 
This document shall not constitute an offer to sell or the solicitation of an 
offer to buy any securities, nor shall there be any sale of securities in any 
jurisdiction in which such offer, solicitation or sale would be unlawful prior 
to registration or qualification under the securities laws of any such 
jurisdiction. No offering of securities shall be made except by means of a 
prospectus meeting the requirements of Section 10 of the U.S. Securities Act of1933, as amended. 
 
NOTES TO EDITORS 
 
Shire enables people with life-altering conditions to lead better lives. 
 
Our strategy is to focus on developing and marketing innovative specialty 
medicines to meet significant unmet patient needs. 
 
We focus on providing treatments in Rare Diseases, Neuroscience, 
Gastrointestinal and Internal Medicine and we are developing treatments for 
symptomatic conditions treated by specialist physicians in other targeted 
therapeutic areas, such as Ophthalmics. 
 
http://www.shire.com/ 
 
 
 
END