Takeda Comes Back to the Table, Shire Acquisition Bid Continues to Twist and Turn

Takeda Pharmaceutical has come back to the bargaining table with a juicier bid for Shire.Yesterday, Takeda’s $60 billion-plus bid for Shire took an odd turn late yesterday when Dublin, Ireland-based Allergan was reported to be in talks with Shire as well. However, by the end of the day, Allergan had stated that it "does not intend to make an offer for Shire."

Meanwhile, Takeda stock dropped almost five percent, apparently because investors are worried Takeda can’t pull off the deal. Shares have continued their volatility, dropping to as low as 14 percent.

In late March, Takeda expressed an interest in acquiring Shire, although no official approach had been made. But per UK law, Takeda had to make an official offer by 5:00 p.m. (London time) on April 25, 2018. Then, yesterday, Takeda made an official bid of 46.50 pounds per share, or $66.20 (U.S.), which has a value of around $60 billion (U.S.).

Shire then rejected the bid, arguing that it undervalued the company. Shortly afterwards, news broke that Allergan was in talks to acquire Shire, but several hours later that fell apart.

This morning, Takeda apparently raised the bid to 47 pounds, or about $66 per share. Takeda stock, which dropped earlier, has continued to drop to as low as 14 percent down, suggesting that investors are jittery about the deal going through. Shire stock has also fallen by about 4.4 percent in early London trading.

Naoki Fujiwara, chief fund manager for Shinkin Asset Management, which holds a position in Takeda, told Bloomberg, "Since Shire declined the (earlier) offer, there’s a possibility the company could get more expensive. We need to be aware of the financial risks. Things are unclear and I’m worried about it."

To make matters even more complicated, the day before, Shire sold its oncology business to France’s Servier for $2.4 billion. Oncology was a very small part of Shire’s portfolio, bringing in only $262 million in 2017. The sale was unrelated to the Takeda takeover bid and had been ongoing since the beginning of the year.

The acquisition, if completed, would bolster Takeda’s cancer, gastrointestinal, neurology and rare diseases portfolio.

It has been noted that Christophe Weber, who heads the 237-year-old Japanese company, is the first non-Japanese chief executive officer to run Takeda. He has been chief executive for three years. Bloomberg writes, "Weber’s pursuit of the mammoth acquisition reveals the challenge he faces in ensuring the future of Japan’s biggest drugmaker. With few late-stage experimental drugs in its own pipeline and a shrinking home market, Takeda needs lucrative new therapies like Shire’s medicines for rare diseases."

This suggests that even if Weber doesn’t manage to close the Shire deal, he’s likely to continue looking for transformative acquisitions.

Reportedly, several Japanese lenders, including Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group, have agreed to finance the takeover, cobbling together 1 trillion yen, or $9.3 billion. And that’s a situation that could be in flux as discussions between Takeda and Shire continue.

Shire’s market value is about $51 billion, while Takeda’s market value is around $36 billion. At the end of 2017, Shire reported debt of around $19 billion. Weber has suggested that he would not proceed to a hostile takeover if mutually agreeable terms can’t be found.

Takeda has had two recent acquisitions. It acquired U.S. oncology company Ariad Pharmaceuticals in 2017 for $5.2 billion, and in January, acquired Belgian’s TiGenix NV.

The offer Shire rejected was made up of 17.75 pounds in cash (paid in U.S. dollars), and 28.75 pounds of new Takeda shares. The cash portion of the offer was 38 percent, up slightly from the original 36 percent offered. Expectations are that Takeda will come back with a sweetened offer with an increased percentage of cash. It’s just not clear how much wiggle room Takeda has to do so.

In a note to clients, Kazuaki Hashiguchi, analyst with Daiwa Securities, observed that Takeda had room to increase its cash offer, but "we do not see a lot of margin."

Reuters writes, "The deal would also be a financial stretch since Shire, with a market value of over 36.6 billion pounds ($51.5 billion), is worth more than Takeda, which has a market capitalization of 3.9 trillion yen ($36.24 billion). Regarding new Takeda shares, analysts said any issuance could lead to a further drop in demand for Takeda stock. They also said there were concerns over whether Takeda may end up overpaying—an accusation frequently leveled at Japanese firms investing overseas."

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