Time for Shire’s Ornskov to face reality
Date March 29, 2018
Japanese rescue gives Shire investors hope at last, March 28, 2018). The suggestion is that, though a bid would be a relief to long-suffering Shire investors, they might end up having to cut their losses and accept a lot less than they might have once hoped for.
Today Shire’s market cap stands at £31bn ($44bn) – a far cry from the £41bn it enjoyed around a year ago, but still better than the nightmare scenario that the group might end up being acquired for less than the $32bn it paid for Baxalta.
No doubt some investors are wondering how differently things might have turned out had Abbvie’s attempt to buy Shirefor $55bn gone through. For one thing, that would presumably have stopped Shire going on to pick up the poisoned chalice of Baxalta.
No magic bullet
As it is the Baxalta deal – which, with the benefit of hindsight looks overpriced to say the least – has left Shire in a hole from which there appears to be no escape, should a buyer fail to materialise.
This presents Mr Ornskov with a final headache. If he does see an independent future for Shire this must surely be supported by a plan to buy in growth, yet the amount of debt Shire took on to finance the Baxalta deal has left it financially hamstrung, and takes serious deal-making off the table.
True, Shire still has the option of raising cash by spinning off its neuroscience division. But Andy Smith, an analyst from Edison Investment Research, believes that this would be a bad move as it would increase Shire’s reliance on riskier assets. “You don’t want to necessarily focus so much that the risk profile of your company goes up. The good, old-fashioned neurology assets are still billion-dollar assets,” he said.
The Baxalta buy illustrates the perils of striking deals out of desperation, something that Takeda, and any other potential Shire suitors, might do well to bear in mind. If a price cannot be agreed, and if no white knight emerges, Mr Ornskov’s nightmare scenario – that Shire falls to a predatory low-ball bid – might come to pass.
Date March 29, 2018
Japanese rescue gives Shire investors hope at last, March 28, 2018). The suggestion is that, though a bid would be a relief to long-suffering Shire investors, they might end up having to cut their losses and accept a lot less than they might have once hoped for.
Today Shire’s market cap stands at £31bn ($44bn) – a far cry from the £41bn it enjoyed around a year ago, but still better than the nightmare scenario that the group might end up being acquired for less than the $32bn it paid for Baxalta.
No doubt some investors are wondering how differently things might have turned out had Abbvie’s attempt to buy Shirefor $55bn gone through. For one thing, that would presumably have stopped Shire going on to pick up the poisoned chalice of Baxalta.
No magic bullet
As it is the Baxalta deal – which, with the benefit of hindsight looks overpriced to say the least – has left Shire in a hole from which there appears to be no escape, should a buyer fail to materialise.
This presents Mr Ornskov with a final headache. If he does see an independent future for Shire this must surely be supported by a plan to buy in growth, yet the amount of debt Shire took on to finance the Baxalta deal has left it financially hamstrung, and takes serious deal-making off the table.
True, Shire still has the option of raising cash by spinning off its neuroscience division. But Andy Smith, an analyst from Edison Investment Research, believes that this would be a bad move as it would increase Shire’s reliance on riskier assets. “You don’t want to necessarily focus so much that the risk profile of your company goes up. The good, old-fashioned neurology assets are still billion-dollar assets,” he said.
The Baxalta buy illustrates the perils of striking deals out of desperation, something that Takeda, and any other potential Shire suitors, might do well to bear in mind. If a price cannot be agreed, and if no white knight emerges, Mr Ornskov’s nightmare scenario – that Shire falls to a predatory low-ball bid – might come to pass.