Shire, Takeda rumoured to have reached logjam over price - report
Shire [LON:SHP] and potential acquirer Takeda Pharmaceutical [TYO:4502] of Japan are rumoured to have reached an impasse in negotiations over the deal’s valuation, the Financial Times reported. Amid the market speculation, Shire’s share price dropped slightly, the report said.
Dublin-headquartered Shire has a market capitalisation of GBP 32.9bn (USD 38.0bn).
The original report appeared in print, page 20
FT : Shire/Takeda: stretch exercise
Japanese group is likely to struggle to extract big operational savings from a tie-up
Bid talk is a tonic in a jittery market. Shire’s shares soared 19 per cent on news of a potential deal. It is the nerves of investors in the would-be buyer — Takeda of Japan — that need soothing.
Japan’s largest drug company has been aggressively seeking growth outside its slowing home market since Frenchman Christophe Weber, a former GlaxoSmithKline executive, became its first foreign boss in 2014.
Takeda described its approach as exploratory. But it sounds keen. It listed six advantages of a deal, including beefing up its position in the US and replenishing its drug pipeline.
Buying Shire would be a big stretch. At about £30bn (¥4.4tn), Takeda’s market capitalisation is only £2bn more than that of Shire before reports of the deal broke. Including a bid premium of, say 30 per cent, and Shire’s hefty net debt of £13.5bn, a deal might be valued at about £50bn.
No wonder Takeda took pains to say it would take a disciplined approach, mindful of its dividends and credit rating. Investors might be unconvinced. When Takeda bought US oncology group Ariad Pharmaceuticals in Mr Weber’s first big deal for $5.2bn, it paid a premium of 75 per cent. The deal increased Takeda’s ratio of net debt to operating earnings before standard deductions to 2.6 times, resulting in a cut to its credit rating.
If a Shire takeover resulted in a ratio of about three times, the companies — with forecast 2018 operating earnings of roughly £7.6bn — would have net debt of almost £23bn. To make this work, Shire holders would have to accept a big wodge of Takeda paper.
Justifying that bid premium would be tricky. Takeda is likely to struggle to extract big operational savings, although some parts of Shire’s business — particularly gastrointestinal and neuroscience — might be a good strategic match.
Having seen its shares fall by nearly a third over the past year, Shire investors will be in a receptive mood. Greater competition and the debt acquired with the $32bn Baxalta deal in 2016 had left the stock trading at just 8.5 times this year’s earnings.
Takeda’s approach is likely to inspire other potential buyers. Good. There are better potential matches. Novartis and Pfizer spring to mind. AbbVie might have another go. Its 2014 bid was nixed by a US tax crackdown. Shire investors will hope any bidder is more successful this time round.