Increasing Our Valuation for Shire Shares

We're going to increase our Shire valuation following the NPS acquisition, which will add to the firm's competitive advantage in the rare disease space

Stefan Quenneville, CFA 13 January, 2015 | 8:00AM

We anticipate increasing Shire’s (SHP) fair value estimate by about 5% following its agreement to acquire NPS Pharmaceuticals for $5.2 billion (£3.4 billion) in cash (or $46 per share). Our fair value estimate for the UK-listed Shire shares is £47.41.

We think the NPS deal reinforces Shire's narrow economic moat, otherwise known as its moderately sustainable competitive advantage, as it will add new drugs to Shire’s growing rare disease portfolio and leverage its gastrointestinal sales force. However, we're cautious about the acquisition's overall value creation, since the company is paying a high price for NPS, whose two key drugs Gattex (known as Revestive outside the US) and Natpara (Natpar) are attractive rare disease assets, but are still commercially unproven.

The $46-a-share offer represents a 10% premium to NPS’s last closing price and is 51% higher than its Dec. 16 price, when rumours of a potential Shire acquisition began to circulate in the media. The deal has been approved by both companies’ boards and is expected to be accretive to Shire’s non-GAAP EPS starting in 2016.

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About Author

Stefan Quenneville, CFA  is an equity analyst with Morningstar.

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