BAXALTA INC. $39

BAXALTA INC. $39(New York symbol BXLT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 679.3 million; Market cap: $26.5 billion; Price-to-sales ratio: 4.3; Dividend yield: 0.7%; TSINetwork Rating: Average; www.baxalta.com) plans to merge with Ireland-based Shire (Nasdaq symbol SHPG), which makes drugs for rare and life-threatening diseases. Taken together, the companies are developing new treatments that should boost their combined annual revenue from $14 billion in 2015 to $20 billion by 2020. Plus the new firm will save $500 million a year by eliminating overlapping operations. Also, the merged company will be based in Ireland, so its income tax rate will be 16% to 17%— compared to the 23% Baxalta currently pays. Under the proposal, Baxalta investors would receive $18.00 a share in cash and 0.1482 of a Shire American depositary receipt (ADR) for each share they hold, giving them 34% of the combined company. Based on current prices, Shire’s offer is worth $41.78 per Baxalta share. If shareholders and regulators approve, the two firms expect to close the deal in mid-2016. But big mergers like this increase the chances of an unpleasant surprise, which is why we prefer Baxter for new buying. Baxalta is a hold.

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