Shire has proposed an all stock transaction in which each Baxalta share would be exchanged for “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, which has traded as low as $29.83 is up sharply today, recently trading at $38.84. This is still a far cry from the value of the proposed deal, implying that investors see a low likelihood of the deal coming to fruition. Most of the deal’s financial savings would come from tax benefits- Shire is based in Ireland.
One major concern for Baxalta and its shareholders must be the tax free status of its spinoff. Shire insists that “[t]he 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”
There has been no public response from Baxalta, but Shire seems willing to raise its bid in a negotiated agreement. Other potential acquirers may be waiting in the wings, spurred to action by Shire’s bid, or Baxalta may find a white knight. All in all, much excitement for a company that is barely one month old.
Disclosure: The author holds no position in any stock mentioned.
From what I understand, a buyout that occurs in under 2 years kills the tax free aspect of the spin off. From what I just read, am I to believe that a buyout that occurs in under 2 years need only be all stock to keep the tax free status? Just want some clarity. I would think that PayPal would be a candidate if that’s the case, no?
@Sean That is usually the case (and many of the separation agreements include clauses like paying tax bills if get acquired etc.), but like all rules there are probably some ways to get around it. Obviously, we aren’t tax specialists, but feel free to look at this guide from Wachtell Lipton – http://www.wlrk.com/files/2015/Spin-OffGuide2015.pdf – it has some useful information on this subject that you might find helpful.
It’s also worth noting that Baxalta did not make mention of tax concerns in its response, so presumably, they agree.
@spindoctor
Thank you very much. From what I read, it’s not a black and white issue, but I get the overall idea. Thanks again!