Viropharma Acquisition by Shire Pharmaceuticals: Was the price right?

Shire Pharmaceuticals acquired Viropharma for USD 4.2 bn. Was the price right? What does Comparable Multiples Method say?

In order to determine whether the price was right, a sample of comparable (publicly listed) companies was collected together with their multiples (Figure 1). Values marked with red colour represent outliers.

Viropharma Multiples

Figure 1: Viropharma Comparable Companies Multiples (Source: FY 2012 Financial Statements)

In Figure 2, the market value of equity of Viropharma was estimated based on the multiples presented above.

Figure 2: Implied Market Value of Equity of Viropharma

Figure 2: Implied Market Value of Equity of Viropharma

It should be noted that equal weights were given to all multiples which resulted in a weighted average market value of equity of USD 1,658 mn. From January 2012 to September 2013 (i.e. until Shire Pharmaceuticals showed interest which could have effect on share price), market capitalisation of Viropharma was ranging between USD 1,342 to USD 2,309 mn. with average market capitalisation (over the same period) being ~ USD 1,785 mn., converging highly to the market value derived through the Comparable Multiples Method (difference of the order of 7%). Therefore, it can be implied that the market valued Viropharma “realistically”.

On November 7th 2013 the market capitalisation of Viropharma reached ~USD 3,300 mn. The acquisition price is usually implied as follows:

Acquisition Price = Market Value of Equity + Control Premium + Synergies Premium

Control Premium is approximately 20% of the market value of equity. Since market value of equity and acquisition price are known, synergies premium should be of the order of USD 300 mn. This amount may also incorporate the Net Present Value of Viropharma’s pipeline (1 pre-clinical, 2 phase I and 5 phase II products). Indeed, according to the Financial Times through this acquisition, Shire Pharmaceuticals may achieve synergies of USD 150 mn. by 2015.

From a valuation perspective, it can be concluded that Shire Pharmaceutical’s offer converged to market reality, mainly arising from the reasonable total premium offered.

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