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Why Shire PLC Fell 15% in January

By Brian Feroldi – Feb 10, 2016 at 10:23AM

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News of a monster acquisition gives investors pause.

What: Shares of Shire PLC (NASDAQ: SHPG), a biotechnology company focused on creating drugs that treat rare diseases, fell by more than 15% in January, according to data from S&P Global Market Intelligence.

SHPG Chart

So what: Despite the stock's downward movement, Shire gave investors plenty of reason to cheer during the month

  • Shire completed its $5.9 billion acquisition of Dyax.
  • Shire resubmitted its NDA for Lifitegrast to the FDA as a potential treatment for dry eye disease in adults. Shire originally received a complete response letter from the FDA in October, and this new submission was aimed at addressing the agency's request for additional information.
  • Two credit rating agencies assigned Shire an investment-grade credit rating.

However, these news releases pale in comparison to the announcement that Shire would be spending $32 billion to acquire Baxalta (NYSE: BXLT), a huge biotechnology company with a strong presence in the hematology and immunology markets. The deal has already been blessed by Baxalta's board of directors. Once completed, it will turn Shire into the biggest rare-disease-focused biotech company in the world.

Now what: The market was taken off guard by the Baxalta acquisition news -- shares fell nearly 10% after the news broke of the deal, likely over possible tax ramifications for shareholders. While Shire's executive team was confident that the deal would remain tax free for shareholders, it's possible that the IRS could play hardball and demand a tax huge payment.

Assuming regulators and shareholders approve the deal, then the transaction is expected to be completed sometime during the summer. However, until we get a definitive answer to the lingering tax question, it's tough for me to get excited about this deal's potential.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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