At the fifth time of asking Takeda has finally won the battle to take over Shire – even if it was only fighting with itself. An increased offer of just over £49 per share is a material increase from the £44 originally offered, but it was most definitely the additional cash that the Japanese firm managed to scrape together that won the day.
Takeda still needs 75% of its shareholders to agree to the deal, but the fact that its stock closed up 4% today indicates that there is willingness to bring an end to this ongoing drama; Takeda shares had fallen more than 20% throughout the negotiations. What the future holds for the enlarged group is less clear.
Beggars can’t be choosers
Another big factor in success for Takeda was the fading hope of a knight, of any description, riding to Shire’s rescue. Despite numerous names thrown into the ring - including Allergan which dropped out almost as soon as it entered the process - no other pharma groups were flushed out.
Acquiescence to Takeda is a welcome, if unexpected, result for Shire shareholders, who in the 12 months prior to the approach had seen the shares decline by over 40%. Questions were growing around the direction being taken under the leadership of chief executive Flemming Ornskov (Vantage view – Time for Shire’s Ornskov to face reality, March 29, 2018).
Sealing the deal
The transaction, which values Shire at just over £46bn ($62bn), will leave Takeda owning 50% of the enlarged group in what is very much a merger of equals. With little left to derail the deal if the Takeda shareholder vote clears, the transaction will close in the first half of 2019.
Takeda today outlined some of the savings it hoped to achieve as part of the transaction: a chunky-looking $1.4bn a year by the end of the third year of ownership, but at the price of a one-off $2.4bn restructuring charge.
The fact that a substantial amount of the cost savings are set to come from cuts to R&D could make some investors nervous about the potential future of the new company.
What might also cause concern is Takeda’s less-than-clear position on how it intends to fund the cash portion of the deal. The group is expected to take on more debt, but in an announcement today said it would “maintain its investment grade credit rating”, which has led some to speculate that it might have to resort to an equity placing following the deal close.
To cut or not?
Another way Takeda could pay down debt faster would be to sell off more of Shire. Shire has itself already carried out a trimming exercise with the disposal of its oncology business to Servier for $2.4bn (Shire taunts Takeda with oncology sale, 16 April, 2018).
Analysts at Berenberg believe other disposal candidates could take the form of haematology or immunology. Offloading the haematology division now could be sensible given the increasing pressure it will face following the approval of Roche’s Hemlibra (Hemlibra shows it is better and cheaper,30 January, 2018).
But if Takeda, which has always been clear that its interests lie in GI, neuroscience, rare diseases and oncology, does dispose of the two divisions, it will leave a smaller group with little to excite in the portfolio. Conversely, if it keeps them, it will have to battle concerns about the threats to the haemophilia franchise and the eventual patent erosion of the ADHD products.
So, while Takeda might have won this fight an even bigger battle could be on the horizon - convincing new and old shareholders that the deal was worth it.
|Takeda/Shire top 10 R&D products|
|Product||Company||Pharmacological Class||2024 sales ($m)||Phase|
|Lanadelumab||Shire||Anti-plasma kallikrein MAb||1,569||Filed|
|Iplex||Shire||Insulin-like growth factor 1/insulin-like growth factor binding protein-3 complex||331||Phase III|
|TAK-003||Takeda||Tetravalent dengue vaccine||269||Phase III|
|SHP640||Shire||Antiseptic & corticosteroid||175||Phase III|
|Pevonedistat||Takeda||NEDD8 activating enzyme inhibitor||132||Phase III|
|TAK-214||Takeda||Norovirus vaccine||130||Phase II|
|SHP647||Shire||Anti-integrin MAb||77||Phase III|
|Relugolix||Takeda||Gonadotrophin releasing hormone antagonist||46||Filed|