Takeda Pharma and Shire Come Back to the Negotiating Table

Takeda Pharmaceutical has come back with an improved bid for Shire, making it the fifth round of talks.

"Following several offers from Takeda, the board requested that the advisers of Shire and Takeda enter into a dialogue to discuss whether a further, more attractive proposal may be forthcoming," said Susan Kilsby, Shire’s chairman, at the annual shareholder meeting in Dublin, which lasted only 15 minutes. "As of today the board can confirm that it is reviewing that offer. As of now we can only say that discussions between the advisers of Shire and Takeda are ongoing."

In late March, Takeda expressed an interest in acquiring Shire, although at that time no official bid had been made. Per UK law, Takeda had to make an official offer by 5:00 p.m. (London time) on April 25, 2018. On April 19, Takeda made an official bid of about $66.20 (U.S.) per share, which has a value of around $60 billion (U.S.). Shire 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 Allergan announced it was no longer interested. On April 20, Takeda raised the bid.

In the middle of this, 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 acquisition bid and had been ongoing since the beginning of the year.

According to Bloomberg, Takeda and Shire have been negotiating a price and a preliminary announcement may occur today. Under the UK acquisition rules, Takeda must announce a firm offer by Wednesday evening or abandon the approach. However, the companies can seek an extension to finalize a deal.

Aside from overall price, part of the sticking point appears to be amount of cash. The bid last Friday included 21 pounds a share in cash and 26 pounds in new stock for Shire.

Several Japanese lenders, including Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group, have agreed to finance the takeover, gathering together 1 trillion yen, or $9.3 billion. Shire’s market value is about $51 billion. Takeda’s market value is about $36 billion. At the end of 2017, Shire reported debt of around $19 billion.

In 2017, Takeda acquired ARIAD Pharmaceuticals for $5.2 billion. In January 2018, Takeda acquired Belgium’s TiGenix NV.

Most analysts expect Takeda to increase the cash portion of the deal, but don’t see much room for maneuvering.

If the acquisition is completed, it would boost Takeda’s presence in cancer, gastrointestinal, neurology and rare diseases. Christophe Weber, Takeda’s chief executive officer, is pushing for overseas growth in the face of patent expirations and a shrinking domestic population. Bloombergnotes, "Acquiring Shire would vault Takeda, which has few late-stage experimental drugs in its own pipeline, into the ranks of the world’s top pharmaceutical companies. The Japanese company last week raised its offer to 47 pounds a share and lifted the cash portion of the bid after three prior proposals were rejected."

Analysts expect Takeda will seek short-term bank loans first, then replace them with longer-term funds by way of bond sales. S&P Global Ratings suggests that the acquisition would hurt the Japanese company’s credit score. Bloomberg writes, "If the firm borrows all of the cash portion, its ratio of net debt to earnings before interest, taxes, depreciation and amortization could temporarily worsen to 5.4 times, Mizuho Securities Co. estimates."

Atsushi Seki, an analyst at UBS Securities Japan Co., told Bloomberg, "Takeda’s credit could be downgraded to junk temporarily, probably just for the short-term—six months or one year," if the deal is completed.

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