Although M&A is a frequent occurrence in the biotech sector, major M&A is normally less common for large cap stocks.
In the case of Shire PLC (ADR) (NASDAQ:SHPG), a $46 billion market cap pharma company, major M&A could be a potential outcome due to activist activity. According to Sky News, famous activist fund Sachem Head Capital Management has urged Shire’s board to consider spinning-off or selling various assets. Sachem disclosed this summer that it had taken a small stake in Shire.
While Sachem doesn’t exactly have a commanding share of Shire’s float, it does have a reputation of activism and a past string of successes. Sachem Head Capital Management did in part succeed in unlocking value in Autodesk, Inc. (NASDAQ:ADSK) and other companies several years ago. Sachem’s founder, Scott Ferguson, is also a former protege of activist legend Bill Ackman.
Shire itself isn’t against M&A. The company’s CEO, Flemming Ornskov, has previously suggested that they might potentially spin off Shire’s neuroscience division in a move that could unlock value.
The difference between Shire PLC (ADR) (NASDAQ:SHPG) and Sachem could be the scale and the timing of the M&A. While Ornskov believes the company will make a decision on the neuroscience division by the end of 2017, Sachem wants a decision faster and for potentially more assets to be included in a spin-off or sale. Sachem hasn’t yet sent a formal letter to Shire’s Board yet, however. By the way you can receive instant email alerts whenever we update our database or publish an article about Sachem Head if you enter your email address below.
Other shareholders of Shire PLC (ADR) (NASDAQ:SHPG) could potentially be receptive to Sachem’s proposals as shares of the major drug manufacturer have fallen 17% in the past year and are down 8.8% year-to-date. That is in stark contrast to the S&P 500’s advance of over 14% year-to-date and a rally of almost 20% in the last four quarters. Whether Sachem has enough to force more M&A is an open question.
In the meantime, Shire management is still working hard on integrating the company’s $32 billion purchase of Baxalta. Although management is optimistic on the potentially synergies of $700 million, it seems that some shareholders aren’t as patient.