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Business Combinations

6 Months Ended

Jun. 30, 2011

2. Business combinations

Acquisition of Advanced BioHealing, Inc (“ABH”)

On May 17, 2011 the Company announced that it had entered into an Agreement and Plan of Merger, (the “Agreement”) to acquire 100% of the outstanding shares and other equity instruments of ABH. On June 28, 2011, in accordance with the terms of the Agreement, Shire completed its acquisition of ABH. The preliminary fair value of cash consideration payable by the Company is $739.2 million, subject to certain customary post closing adjustments. The purchase price was funded by a combination of Shire's existing cash resources and a $30.0 million draw down of Shire's revolving credit facility.

The acquisition of ABH adds the DERMAGRAFT product, a regenerative bio-engineered skin substitute, to Shire's portfolio. DERMAGRAFT is marketed in the US for the treatment of diabetic foot ulcers (“DFU”) greater than six weeks in duration, and brings future growth prospects through a potential expanded indication for venous leg ulcers (“VLU”). The acquisition combines ABH's expertise and commercial capability in regenerative medicine with the Company's strengths and expertise in human cell biological manufacturing.

The acquisition of ABH has been accounted for as a purchase business combination. The assets acquired and the liabilities assumed from ABH have been recorded at their preliminary fair values at the date of acquisition, being June 28, 2011. The Company's consolidated financial statements and results of operations include the results of ABH from June 28, 2011. In the three and six months to June 30, 2011 the Company included revenues of $2.0 million (2010: $nil) and post tax losses of $0.6 million (2010: $nil) for ABH within its Unaudited Consolidated Statements of Income.

The Company's preliminary allocation of the purchase price to the assets acquired and liabilities assumed is outlined below:

	Preliminary
	Fair value
	$’M
Identifiable assets acquired and liabilities assumed

ASSETS
Current assets:
Cash and cash equivalents	14.6
Accounts receivable	30.1
Inventories	31.8
Deferred tax assets	32.3
Other current assets	7.9
	_______________
Total current assets	116.7

Non-current assets:
Property, plant and equipment	16.5
Goodwill	192.5
Other intangible assets
- DERMAGRAFT product technology	710.0
- other intangible assets	1.5
Other non-current assets	0.1
	_______________
Total assets	1,037.3
	_______________
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities	49.3

Non-current liabilities:
Long term debt, less current portion	9.1
Deferred tax liabilities	238.7
Other non-current liabilities	1.0
	_______________
Total liabilities	298.1
	_______________
Fair value of identifiable assets acquired and liabilities assumed	739.2
	_______________

Consideration
Cash consideration payable	739.2
	_______________

The purchase price allocation is preliminary pending final determination of the cash consideration payable (which may be adjusted based on ABH's closing adjusted working capital) and the fair values of certain assets acquired and liabilities assumed. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date.

Other intangible assets include $710.0 million relating to DERMAGRAFT product technology, representing DFU and the potential expanded indication for VLU in the US, the product brand name and related relationships. The fair value of this asset has been estimated using an income approach, using the excess earnings method. The estimated useful life of the technology is 18 years, and amortization expense will be recorded on a straight line basis.

Goodwill arising of $192.5 million, which is not deductible for tax purposes, has been assigned to the Specialty Pharmaceuticals (“SP”) operating segment. Goodwill includes the values of tax synergies, assembled workforce and future potential indications for the DERMAGRAFT product which do not meet the criteria for recognition as separate intangible assets.

In the three and six months to June 30, 2011 the Company incurred acquisition-related costs of $6.9 million (2010: $nil), which have been charged to Integration and acquisition costs in the Company's income statement.

Supplemental disclosure of pro forma information

The following unaudited pro forma financial information presents the combined results of the operations of Shire and ABH as if the acquisition of ABH had occurred at January 1, 2010. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations actually would have been had the acquisition been completed at the date indicated. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined Company.

	6 months to	6 months to
	June 30,	June 30,
	2011	2010
	$’M	$’M
	_______________	_______________
Revenues	2,125.3	1,730.1

Net income attributable to Shire plc	401.6	313.6
	_______________	_______________

Per share amounts:
Net income per ordinary share attributable to Shire plc – basic	72.9c	57.5c

Net income per ordinary share attributable to Shire plc – diluted	70.3c	56.1c
	_______________	_______________

The unaudited pro forma financial information above reflects the following pro forma adjustments:

an adjustment to net income of $49.9 million and $9.8 million for the six months to June 30, 2011 and 2010 respectively, to eliminate the income statement effect of changes in the fair value of ABH's preferred stock warrants (which were extinguished on acquisition of ABH);
an adjustment to increase amortization expense by approximately $20.0 million for both the six months to June 30, 2011 and 2010, to reflect amortization of intangible assets, principally for DERMAGRAFT product technology, over their estimated useful lives;
an adjustment to decrease net income by $6.9million for the six months to June 30, 2010 to reflect acquisition and integration costs incurred by Shire, and increase net income by $23.9 million for the six months to June 30, 2011 to eliminate the acquisition and integration costs incurred by ABH and Shire;
an adjustment of $1.4 million and $1.5 million in the six months to June 30, 2011 and June 30, 2010 respectively to reflect interest income foregone on the Company's cash resources used to fund the acquisition of ABH and interest expense incurred as result of the partial funding of the acquisition of ABH through the Company's revolving credit facility; and
adjustments to reflect the tax effects of the above adjustments, where applicable.