Shire seen having wiggle room on price in $30 billion Baxalta battle

By Paul Sandle

LONDON (Reuters) - Baxalta (BXLT.N) wants Shire (SHP.L) to improve on its $30 billion (19.2 billion pounds) bid significantly before it will engage in talks, while its Dublin-based rival could sweeten its offer if it gets to see the U.S. biotech company's books, according to sources on both sides.

Both camps are pushing hard behind the scenes to get the upper hand in what is the latest of a string of takeover battles in the healthcare sector.

Bolstered by the backing of its shareholders, Baxalta's management is digging in by scorning Shire's initial approach as woefully inadequate for a newly listed company which expects its shares to appreciate as it becomes better known.

For its part, a person close to Shire said it had room to manoeuvre on price, and could move in the next couple of weeks to break an impasse. Shire forced Baxalta into a corner by going public with its offer last week, after Baxalta's management spurned its approach in private talks.

After a series of meetings with major shareholders on both sides, Shire believes the argument about industrial logic is close to being settled.

"Now the funnel is closing in on value," the person close to Shire said. "There is a threshold where a deal doesn't make sense for Shire. We're not in that zone at the moment."

Shire believes it is succeeding in persuading investors about the merits of a deal and is prepared to continue a round of meetings for another week or two, after which the "logical step" would be to sit down and talk.

RARE DISEASES

Shire wants to buy Baxalta, a developer of biotech treatments for rare blood conditions, cancers and immune system disorders, to create a global leader in rare diseases.

A combined company would have revenues of more than $20 billion a year by 2020, and its size would rule out a takeover by all but the biggest pharma firms, like Pfizer (PFE.N), according to analysts.

Shire's own rare disease and hyperactivity drugs portfolio was targeted by AbbVie (ABBV.N) last year. It eventually agreed a $50 billion takeover before tax rules changes scuppered the deal.

Baxalta, spun off from Baxter International (BAX.N) last month, has said the value of Shire's all-share offer is "wholly inadequate", although Baxalta's chief executive Ludwig Hantson has said he is not intransigent.

An industry source said Baxalta's board was taken aback by the tactics used by Shire's Chief Executive Flemming Ornskov, a veteran dealmaker. He would not have expected to make a single proposal and then be waved in, according to the source.

"Baxalta's board carefully considered it," the source said, adding that it was not an "agonising debate".

"They didn't say 'no way, no how, never'. They said 'this proposal is not a basis to engage, something needs to be compelling'."

But the tone of conversations relayed through shareholders remained cordial, both sides said.

Shire's all-share offer, worth around $45.23 a share when Shire went public last week, has fallen in value to around $42.

That $42 is equivalent to a premium of nearly 27 percent on Baxalta's share price on Aug 3, which the industry source said was well short of the 50 percent premiums seen in other recent biotech deals.

Some major Shire shareholders, while urging caution about over overpaying, have already indicated they are ready to see Shire stump up around $50 a share.

(Additional reporting by Ben Hirschler and Pamela Barbaglia; Editing by Keith Weir)