Shire to combine with Baxalta, creating the global leader in rare diseases

ShireShire plc (LSE: SHP, NASDAQ: SHPG) and Baxalta Incorporated (NYSE: BXLT) announced that the boards of directors of both companies have reached an agreement under which Shire will combine with Baxalta. Under the agreement, Baxalta shareholders will receive $18.00 in cash and 0.1482 Shire ADS per Baxalta share. Based on Shire's closing ADS price on January 8, 2016, this implies a total current value of $45.57 per Baxalta share, representing an aggregate consideration of approximately $32 billion. The exchange ratio is based on Shire's 30-day trading day volume weighted average ADS price of $199.03 as of January 8, 2016, which implies a total value of $47.50 per Baxalta share.

The value of the offer, as of Shire's January 8, 2016 closing ADS price, represents a premium of approximately 37.5% to Baxalta's unaffected share price on August 3, 2015, the day prior to the public announcement of Shire's initial offer for Baxalta. This will provide Baxalta shareholders with approximately 34% ownership in the combined company. The parties expect the transaction to close mid-2016.

Shire Chief Executive Officer Flemming Ornskov, M.D., M.P.H., commented: "This proposed combination allows us to realize our vision of building the leading biotechnology company focused on rare diseases. Together, we will have leadership positions in multiple, high-value franchises and become the clear partner of choice in rare diseases. Our expanded portfolio and presence in more than 100 countries will drive our growth to over $20 billion in anticipated annual revenues by 2020. Our due diligence has reinforced our belief in the combination, and we look forward to welcoming Baxalta colleagues to a shared entrepreneurial, patient-driven culture."

Susan Kilsby, Chairman of Shire, commented: "Together, Shire and Baxalta create a platform for sustainable innovation, growth and value creation. Shire is an experienced and disciplined acquirer with a track record of delivering shareholder value. Stakeholders of both companies are expected to benefit from the enhanced growth prospects, superior operational scale and efficiency and the strong financial and organizational profile of the combined entity."

Baxalta Chief Executive Officer Ludwig N. Hantson, Ph.D., commented: "Today's announcement marks a new path forward for our organization and is a testament to the significant progress we have made in achieving our strategic business priorities. This transaction presents a unique opportunity for Baxalta shareholders, who will receive substantial immediate value as well as an ongoing stake in a combined global leader in rare diseases with strong growth prospects. We bring to Shire a strong portfolio and pipeline of market-leading products, high-quality manufacturing capabilities and a talented global workforce that places patients at the center of everything we do. The combined organization will be well positioned to accelerate innovation and deliver enhanced value for all stakeholders."

Wayne T. Hockmeyer, Ph.D., Chairman of Baxalta, commented: "We launched Baxalta to focus on purpose-driven performance, sustainable growth, and continuing our leadership in developing treatments for orphan and underserved diseases. While we have made great progress to date and have had a measurable impact across all our businesses, I look forward to joining the board of the combined company to help ensure that we infuse the best of both organizations and foster a new shared culture that has the resources, the passion, and the commitment to continue to make a meaningful difference in the lives of our patients and their families."

Baxter International Chairman and Chief Executive Officer José E. Almeida commented: "Baxter fully supports the proposed combination of Shire and Baxalta, which will create a major biotechnology company and global leader in rare diseases. Baxter is pleased to support this value enhancing transaction."

Combination Creates the Global Leader in Rare Diseases with a Sustainable Platform for Future Innovation, Growth and Value Creation
The combination of Baxalta and Shire will create the number one rare diseases platform in revenue and pipeline depth, with best-in-class products in each of the following growing, multi-billion-dollar franchises: Hematology; Immunology; Neuroscience; Lysosomal Storage Diseases; Gastrointestinal / Endocrine; and Hereditary Angioedema (HAE). The combined company will also possess a growing franchise in Oncology, with approved products and innovative compounds in development, as well as a robust late-stage Ophthalmics pipeline.

The combined portfolio will have an expanded range of therapeutic areas with more than 60 programs in development, including over 50 that will address rare diseases and the newly-approved Baxalta products ADYNOVATE, VONVENDI and OBIZUR. Shire anticipates more than 30 recent and planned product launches from the combined pipeline, contributing approximately $5 billion in annual revenues by 2020.

Further, the combined company will benefit from expanded geographic reach across more than 100 countries, with a high-quality commercial organization and world-class manufacturing operations. Through a balanced portfolio and expanded therapeutic expertise and capabilities, the combination will enhance revenue diversification and optionality for the business, while strong cash flows will increase financial and operational scale. In total, the proposed combination will create a sustainable platform for future innovation and growth, yielding projected near- and long-term value for shareholders.

Financial Highlights
Shire anticipates that it will realize more than $500 million in annual cost synergies (expected to be achieved within the first three years post-closing). These annual cost synergies will be achieved by increasing efficiencies, leveraging the scale of the combined business, aligning to Shire's lean operating model and optimizing the combined R&D portfolio. Further, Shire expects to generate additional revenue synergies and a combined non-GAAP effective tax rate of 16-17% by 2017. Growth is expected to be accelerated by combining capabilities and establishing a global infrastructure that will include a "best of both" commercial model and a presence in over 100 global markets.

The transaction is expected to be accretive to non-GAAP diluted EPS in 2017, the first calendar year of ownership, and beyond. The combined company is expected to generate annual operating cash flow of $6.0 billion beginning in 2018, underpinning an attractive ROIC that will exceed Shire's cost of capital in 2020.

Shire has conducted additional tax due diligence, and based on this diligence, Shire and its tax advisor have concluded that a merger with the proposed cash consideration of $18 per Baxalta share will maintain the tax-free status of the Baxalta spinoff from Baxter.

Shire has secured an $18 billion fully underwritten bank facility to finance the combination. The new bank facility has a one year life, with a one-year extension available at Shire's option. Shire intends to refinance the bank facility through capital market debt issuances in due course. The financing of the transaction has been structured with the intention of maintaining an investment grade credit rating for the combined entity. Shire is committed to de-levering rapidly post-close by deploying free cash flow to repay debt. Shire is targeting a net debt to EBITDA range of between 2.0x and 3.0x 12-18 months post-closing.

Transaction Details
Under the agreement, Baxalta shareholders will receive $18.00 in cash and 0.1482 Shire ADS per Baxalta share. Based on Shire's closing ADS price on January 8, 2016, this implies a total current value of $45.57 per Baxalta share, representing an aggregate consideration of approximately $32 billion. The exchange ratio is based on Shire's 30-day trading day volume weighted average ADS price of $199.03 as of January 8, 2016, which implies a total value of $47.50 per Baxalta share.

The value of the offer as of Shire's January 8, 2016 closing ADS price represents a premium of approximately 37.5% to Baxalta's unaffected share price on August 3, 2015, the day prior to the public announcement of Shire's initial offer for Baxalta. This will provide Baxalta shareholders with approximately 34% ownership in the combined company.

Closing
The transaction has been approved by the boards of directors of both Shire and Baxalta. Closing of the transaction is subject to approval by Baxalta and Shire shareholders, certain regulatory approvals, redelivery of tax opinions delivered at signing and other customary closing conditions. The transaction is a class 1 transaction for Shire for the purposes of the UK Listing Rules requiring the approval of Shire shareholders. A shareholder circular, together with notice of the relevant shareholder meeting, will be distributed to Shire shareholders in due course. The parties expect the transaction to close mid-2016.

About Shire
Shire enables people with life-altering conditions to lead better lives.

Shire's strategy is to focus on developing and marketing innovative specialty medicines to meet significant unmet patient needs.

Shire's focus is 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.

About Baxalta
Baxalta Incorporated (NYSE: BXLT) is a $6 billion global biopharmaceutical leader developing, manufacturing and commercializing therapies for orphan diseases and underserved conditions in hematology, oncology and immunology. Driven by passion to make a meaningful impact on patients' lives, Baxalta's broad and diverse pipeline includes biologics with novel mechanisms and advanced technology platforms such as gene therapy. The Baxalta Global Innovation and R&D Center is located in Cambridge, Massachusetts. Launched in 2015 following separation from Baxter International, Baxalta's heritage in biopharmaceuticals spans decades. Baxalta's therapies are available in more than 100 countries and it has advanced biological manufacturing operations across 12 facilities, including state-of-the-art recombinant production and plasma fractionation. Headquartered in Northern Illinois, Baxalta employs 16,000 employees worldwide.

The total assets of Baxalta as at 31 December 2014 amounted to US$8.8 billion. For the year ended 31 December 2014, GAAP pre-tax income from continuing operations amounted to US$1.5 billion and adjusted pro forma EBITDA amounted to US$2.2 billion. The total assets of Baxalta as at 30 September 2015 amounted to US$12.9 billion. For the nine months ended 30 September 2015, GAAP pre-tax income from continuing operations amounted to US$1.1 billion and adjusted pro forma EBITDA amounted to US$1.6 billion.

Adjusted pro forma EBITDA for the year ended 31 December 2014 represents GAAP pre-tax income from continuing operations excluding depreciation and amortization expense of US$206 million and other expense of US$104 million, and as adjusted for other special items and pro forma adjustments (related to the separation from Baxter) totaling US$363 million. Adjusted pro forma EBITDA for the nine months ended 30 September 2015 represents GAAP pre-tax income from continuing operations excluding depreciation and amortization expense of US$187 million, interest expense of US$26 million and other income of US$87 million, and as adjusted for other special items and pro forma adjustments (related to the separation from Baxter) totaling US$376 million. Refer to Baxalta's earnings press releases that have been furnished as Exhibit 99.1 to Baxalta's Current Report on Form 8-K filed with the SEC on both July 30, 2015 and October 29, 2015 for additional information.

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