Shire shareholders see value in Takeda’s GBP 47/shr offer
MergerMArket
- Higher cash component would make offer more attractive
- Takeda equity not seen alluring
- Shire in talks with top investors – leading shareholder
Takeda Pharmaceutical’s [TYO:4502] last disclosed offer for Shire [LON:SHP] is close to fair value for the Dublin-based company’s shares, said four minority shareholders in the target.
Takeda’s fourth bid for Shire, announced on Friday, was worth GBP 47 per share. The company has since made a fifth offer, but the terms of the latest offer are yet to be disclosed.
A leading shareholder indicated there were ongoing discussions over offer price between Shire and its top investors.
An offer of about GBP 47 is fair value for Shire, said Markus Manns, a portfolio manager at Union Investment, also a minority shareholder in Shire. A second minority shareholder agreed that an offer price of about GBP 47 was fair value, given that it was close to the GBP 50 per share offer price that had initially been expected.
However, Manns and a third minority shareholder said an offer for Shire would be more attractive if the offer included a higher cash component.
Takeda’s last disclosed offer consists GBP 26 in Takeda stock and GBP 21 in cash. The shift in the mix is a step in the right direction but it is not quite there yet, said the third shareholder.
However, Manns acknowledged Takeda faced obstacles to offering more cash.
Takeda is not likely to leverage more than 5x net debt/EBITDA and they are already close to that level, he said.
A fourth minority shareholder echoed Manns in saying that Takeda’s offer price for Shire is unlikely to increase materially. Takeda can’t do the deal at a much higher price, the shareholder said, adding that the company may only be able to offer slightly more.
Offer composition
Still, most of the shareholders this news service spoke to expressed scepticism about holding Takeda shares.
Takeda is overvalued in comparison to its international peers, Manns said, pointing out that Takeda shares trade at around 22x price to equity.
The industry average is 15x P/E, he said, adding that the Takeda’s earnings growth lags that of some of its US and European peers.
However, a fifth shareholder, who also holds Takeda shares, offered a counter view.
A lot of people are overestimating a downside in Takeda, this shareholder said, adding that a combination between Takeda and Shire would create a massively accretive deal despite the issuance of new shares.
The shareholder said that based on feedback his firm had received nearly all of Shire’s top 10 holders in the UK and US - with the exception of one or two investors - were open to receiving Takeda shares.
However, the second minority shareholder stressed that he would likely sell any Takeda shares he received, despite having a mandate to hold international shares.
Manns, whose fund also has a mandate to hold international shares, stressed that Takeda’s shares were overvalued.
The third shareholder also said he wanted to shy away from the overhang associated with holding Takeda paper. This shareholder, who has a long-term investment thesis, said he had rather hold Shire shares than tender into an offer by Takeda.
Shire’s fundamental performance has started to improve, and the stock has potential, he said.
Iain Pyle of Aberdeen Standard Investments, Shire’s second-largest investor, agreed.
“The market isn’t recognising the quality in parts of the business such as rare disease and immunology,” he said, adding that Shire is at a significant discount compared to the sector.
“The fact that a company is out there looking at it shows the industry recognises value in the company where the market doesn’t,” he concluded.
Takeda’s fourth bid for Shire, announced on Friday, was worth GBP 47 per share. The company has since made a fifth offer, but the terms of the latest offer are yet to be disclosed.
A leading shareholder indicated there were ongoing discussions over offer price between Shire and its top investors.
An offer of about GBP 47 is fair value for Shire, said Markus Manns, a portfolio manager at Union Investment, also a minority shareholder in Shire. A second minority shareholder agreed that an offer price of about GBP 47 was fair value, given that it was close to the GBP 50 per share offer price that had initially been expected.
However, Manns and a third minority shareholder said an offer for Shire would be more attractive if the offer included a higher cash component.
Takeda’s last disclosed offer consists GBP 26 in Takeda stock and GBP 21 in cash. The shift in the mix is a step in the right direction but it is not quite there yet, said the third shareholder.
However, Manns acknowledged Takeda faced obstacles to offering more cash.
Takeda is not likely to leverage more than 5x net debt/EBITDA and they are already close to that level, he said.
A fourth minority shareholder echoed Manns in saying that Takeda’s offer price for Shire is unlikely to increase materially. Takeda can’t do the deal at a much higher price, the shareholder said, adding that the company may only be able to offer slightly more.
Offer composition
Still, most of the shareholders this news service spoke to expressed scepticism about holding Takeda shares.
Takeda is overvalued in comparison to its international peers, Manns said, pointing out that Takeda shares trade at around 22x price to equity.
The industry average is 15x P/E, he said, adding that the Takeda’s earnings growth lags that of some of its US and European peers.
However, a fifth shareholder, who also holds Takeda shares, offered a counter view.
A lot of people are overestimating a downside in Takeda, this shareholder said, adding that a combination between Takeda and Shire would create a massively accretive deal despite the issuance of new shares.
The shareholder said that based on feedback his firm had received nearly all of Shire’s top 10 holders in the UK and US - with the exception of one or two investors - were open to receiving Takeda shares.
However, the second minority shareholder stressed that he would likely sell any Takeda shares he received, despite having a mandate to hold international shares.
Manns, whose fund also has a mandate to hold international shares, stressed that Takeda’s shares were overvalued.
The third shareholder also said he wanted to shy away from the overhang associated with holding Takeda paper. This shareholder, who has a long-term investment thesis, said he had rather hold Shire shares than tender into an offer by Takeda.
Shire’s fundamental performance has started to improve, and the stock has potential, he said.
Iain Pyle of Aberdeen Standard Investments, Shire’s second-largest investor, agreed.
“The market isn’t recognising the quality in parts of the business such as rare disease and immunology,” he said, adding that Shire is at a significant discount compared to the sector.
“The fact that a company is out there looking at it shows the industry recognises value in the company where the market doesn’t,” he concluded.
Reportedly, Shire has been under pressure from US activist Sachem Head since last year to consider a break-up of the company.
Shire and Takeda did respond to requests for comment.
Shire and Takeda did respond to requests for comment.
PPG continues M&A efforts; 'very healthy number of people we're talking to'
24 APR 2018
PPG [NYSE:PPG], the Pittsburgh, Pennsylvania-based provider of paints, coatings and specialty materials, has an active acquisition process and is careful on valuation, CEO Michael McGarry said.
On the 1Q18 earnings call held 19 April, Morgan Stanley's Vincent Andrews asked for an M&A update.
"The biggest challenge we have right now is the fact that when you're trying to buy somebody whose earnings are going down, they want to look backwards to what they were doing 12 months ago, and we want to look at either what they're doing today or what they're going to do in the next quarter. And they want to get paid on what their business used to be," the CEO replied.
Because of this dynamic, McGarry described current conversations as "a little bit more challenging."
"We have a very healthy number of people we're talking to. In fact, we had a new one fly in last week. So I would tell you that the pipeline is still there," he said.
McGarry noted that PPG had historically preferred acquisitions over share repurchases.
"So we're going to continue to look hard at acquisitions. But if we can't do them, then we'll buy back stock," he said.
In his opening remarks on the call, the CEO said PPG ended the quarter with over USD 1.4bn in cash and short-term investments. The company expects to deploy a minimum of USD 2.4bn of cash in 2018 on acquisitions and share repurchases, he said.
PPG reports for two segments: Performance Coatings and Industrial Coatings. End-use markets include industrial equipment and components; packaging material; aircraft and marine equipment; automotive original equipment; automotive refinish; and commercial and residential new build and maintenance markets.
The remarks on last week's call added to those made on the previous earnings call in January 2018 when, as this news service reported at the time, CEO McGarry said PPG's most successful markets for M&A were mature regions such as North America and Europe. While there were a lot of things for sale in Asia, the multiples would not create value for shareholders, he said in January.
PPG used Goldman Sachs for the proposal to combine with AkzoNobel, which was withdrawn in June 2017. Morgan Stanley advised PPG on its 2014 purchase of Consorcio Comex for USD 2.3bn.
On the legal side, PPG's previous transactional advisors include Hogan Lovells, according to the Mergermarket M&A database. Wachtell, Lipton, Rosen & Katz and Allen & Overy were used for the AkzoNobel proposal.
PPG has a market capitalization of USD 27bn.
Relevant links (supplied by Perfect Information, an Acuris Company)
SHIRE AGM IN DUBLIN ENDS WITHOUT FURTHER COMMENT FROM EXECUTIVES ON TAKEDA BID