Why Baxalta Is A Sell Now For Dividend Growth Investors

Back in July of 2015, Baxalta (BXLT) was recommended as a buy to readers of the Sure Dividend newsletter.

Shares of Baxalta closed for $31.71 the first day (July 6th, 2015) after they were recommended .

Here’s what the July 5th the newsletter had to say about Baxalta:

“Baxalta’s high expected total returns and competitive advantage should give the company a P/E ratio above the S&P 500’s. Fortunately for shareholders, Baxalta’s P/E ratio is still low at around 13.3. The company’s P/E ratio is being suppressed due to selling from the recent spin-off. Now is an excellent time to buy into this high quality pharmaceutical business, while the P/E ratio is still low.”

Today, Baxalta stock is trading for ~$40 per share. Baxalta investors who purchased at the closing price on July 6th, 2015 are sitting on 27% total returns (including dividends).

For comparison, the S&P 500 is down ~8% over the same time period.

The Shire Acquisition Drama

Repeated acquisition attempts by Shire Plc (SHPG) has repeatedly attempted to acquire Baxalta.

On August 4th, 2015 Shire offered to acquire Baxalta for ~$45 per share. The announcement caused shares of Baxalta to rise from around $33 per share to around $37 per share.

Baxalta’s management quickly rejected the offer. The company’s press release said the following:

“During our meeting this week, the Board unanimously concluded that it is not prepared to engage with Shire in a discussion about a combination of our companies based on the value you indicated in your proposal”

“A transaction at the exchange ratio you proposed significantly understates Baxalta’s true value.”

Our board is mindful of its fiduciary obligations to Baxalta’s shareholders, and we are confident in our standalone plan and our ability to generate significant shareholder value based on that plan. Baxalta’s platform is well positioned to generate substantial value for our shareholders and proceeding with a transaction at this time presents a significant and real risk to that value creation. Our Board has evaluated your proposal in this context and concluded that it is not a basis for further discussions.”