Shire taunts Takeda with oncology sale

Shire shareholders must be crossing their fingers for a bid from Takeda by next Wednesday’s deadline. But Shire’s management seems to have other ideas, with today’s sale of its oncology assets on the face of it looking like a defensive move against its Japanese suitor – unless it is trying to force Takeda’s hand.

Takeda raised eyebrows when it cited oncology as a reason for its interest in Shire – the Ireland-headquartered group is hardly a big gun in cancer. But Shire has managed to get Servier to cough up an unlikely $2.4bn for a unit that essentially comprises Oncaspar and Onivyde and some early-stage assets (see table below). If Shire hopes for Takeda to come in with something better it looks to be playing a dangerous game.

Either way, Shire seems to be in a rush. The sale of the oncology business does not require shareholder approval and, having already got the go-ahead from the board, is expected to close in the second or third quarter.

Sources close to Shire declined to speculate on whether the Servier deal made a Takeda takeout more or less likely, adding that the two processes were separate, with Shire first shopping the oncology unit to potential buyers in the US, Europe and Japan at the end of last year.

Takeda could still be interested in an oncology-less Shire, with both Credit Suisse and Deutsche Bank analysts writing that, owing to its small size, the cancer business would probably not be a deal-breaker.

Others took a rosier view, with Jefferies and Barclays analysts claiming that the Servier deal could actually strengthen Shire’s hand in any negotiations with potential buyers, as the surprisingly high price tag suggests that Shire’s stock is currently undervalued.

This is perhaps what Shire’s chief executive, Flemming Ornskov, is depending on. He has been under fire for overpaying for Baxalta and leaving Shire saddled with debt – factors that had left Shire haemorrhaging value until Takeda came onto the scene last month (Vantage view – Time for Shire’s Ornskov to face reality, March 29, 2018).

Shire is unable to turn to M&A as a strategy to fend off Takeda. The company needs to pay back debt before making any more big buys, and in any case has said it will consider a share buyback with proceeds from the Servier deal.

But if Mr Ornskov can get a better offer for Shire than the £35bn ($50bn) that Takeda is said to be considering – a price tag that would have looked low a year ago – all might be forgiven.

However, this is a difficult tightrope to walk as, if Shire only succeeds in scaring off its buyer, things could get even gloomier for the company. As a stand-alone entity Shire will have a hard time turning things around and it could be a couple of years before there is any light at the end of the tunnel, analysts have previously told EP Vantage.

And, having had the prospect of a knight in shining armour dangled in front of them only to be snatched away, investors are likely to desert Shire in their droves, perhaps sending its stock even lower than the £29.50 seen before Takeda expressed its interest in late March.

There are reasons to be cautious about whether all the recent talk will turn into a solid bid, including doubts about whether Takeda can even afford Shire, which currently has a market cap of £33bn ($47bn) – around $10bn more than Takeda’s – plus £19bn in debt. Takeda has reportedly been sounding out its creditors as it prepares a bid for Shire, but it would still be a stretch for the Japanese company.

Then there are questions over the wisdom of shelling out for a premium for the blood business that Shire gained through the disastrous 2016 acquisition of Baxalta. These assets do not appear to be high on Takeda’s list of priorities – the Japanese company previously highlighted gastrointestinal disease and neuroscience, as well as oncology, as its main draws.

Shire now faces a waiting game – under UK takeover laws Takeda has until 5pm UK time on April 25 to make a bid.

Perhaps Takeda would be better off just picking up Shire’s neuroscience business, which is also on the table – the UK company said in August that it was considering spinning off the unit. That franchise’s key product, Vyvanse, is facing patent expiry in 2023, but it is still profitable.

This might be a neat solution for Takeda, but would do nothing to solve Shire’s woes.

To contact the writer of this story email Madeleine Armstrong in London at [email protected] or follow @ByMadeleineA on Twitter