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Shire buys $4B BioChem
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December 11, 2000: 10:53 a.m. ET
U.K. drug maker to buy Canadian BioChem Pharma for stock
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LONDON (CNNfn) - British specialty drug maker Shire Pharmaceuticals Group PLC agreed Monday to buy Canadian counterpart BioChem Pharma Inc. for $4 billion in stock, broadening the U.K. company's product range into HIV and cancer therapies but sending its stock into a nosedive.
Shire will pay the equivalent of $37 per BioChem share – more than 39 percent above the closing stock price Friday. The combination adds the fast-growing Canadian firm's expertise in cancer and infectious diseases to Shire's portfolio, built around Adderall, an attention-deficit hyperactivity disorder (ADHD) drug that accounts for about 45 percent of the company's sales.
Jim Wood-Smith, chief analyst at Greig Middleton in London, said Shire may be paying too much, even though the strategic justification for the deal is sound.
"It's an awfully big premium [Shire] has paid," said Wood-Smith, who still has a "buy" rating on the company's shares. "The long-term strategy is super. Shire had been faulted for over-reliance on ADHD, a sector where competition has been increasing. It had to get its hands on a broader product range – and BioChem does that."
Shire (SHP), the U.K.'s fourth-largest pharmaceutical company by market capital, behind SmithKline Beecham PLC (SB-), AztraZeneca (AZN) and Glaxo Wellcome PLC (GLXO), saw its shares sink 209 pence, or more than 17 percent, to 1,020 pence in late Monday afternoon trading in London. BioChem Pharma (BCHE: Research, Estimates) surged 10.25 percent to C$44.10 ($29) in early trade on Toronto Stock Exchange.
While Shire officials in a conference call insisted the purchase would boost income, Wood-Smith said, "It's unclear as to what the [earnings per share] dilution will be, and we won't know until the deal closes."
Shire pledged to pay a fixed price of $37 worth of its stock for every BioChem share – provided that the average closing price of a Shire's American depositary receipt over the15 days prior to closing is between $47.20 and $70.80. The value of the share offer will be adjusted if the ADR price moves beyond those limits.
Shire, whose footprint is primarily in North America and Europe, focuses on medicines for central nervous system disorders – including Adderall – and metabolic diseases, cancer and gastroenterological conditions. The company reported a 67 percent jump in operating profit in its third quarter. 
Laval, Quebec-based BioChem gets about two-thirds of its revenue from therapeutics, including HIV treatments 3TC and Combivir, bladder cancer treatment PACIS, and Zeffix, an oral treatment for chronic hepatitis B. Its product slate also includes provides flu vaccine Fluviral S/F.
The deal, which requires shareholder approval, is expected to close in the second quarter of 2001. The combined company would have had pro forma revenue of $587 million in 1999, and is expected to have a market value of about $8.5 billion.
Based on Friday's closing prices, the transaction would hand Biochem's shareholders 47 percent of the combined company, while Shire's owners keep the other 53 percent.
Deutsche Bank advised Shire, while Chase H&Q and Merrill Lynch were financial advisers to BioChem. 
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