Takeda ups bid, but Shikeda will be a difficult birth

Takeda might have been rebuffed so far, but confirmation of three firm bids for Shire shows that the Japanese company is very serious.

Revealed for the first time today, Takeda's latest offer values Shire at £44bn ($60bn), £3bn higher than its first approach. Presumably the terms contained far too much stock for the Shire board to swallow – almost two thirds was offered in equity – though the overall price is not too far off the point at which many see a deal getting done.

A statement from Shire today laid out the three bids that it has received since March 29, all of which have been turned down on the usual basis. The proposals “significantly undervalue” the company, Shire said, adding that both parties were still talking. Further proposals will be evaluated, Shire insisted, leaving the distinct impression that its doors are wide open to suitors.

Still no: Takeda's rejected offers
First proposal Second proposal Third proposal
Total price per share (£) 44.00 45.50 46.50
     Of which new Takeda shares (£) 28.00 28.75 28.75
     Of which cash (£) 16.00 16.75 17.75
Value of Shire's equity (£) 41bn 43bn 44bn
% to be owned by Shire shareholders 50 51 51
Source: company statement.

If rumours are to be believed other interested parties are now emerging. Allergan today confirmed that it was "in the early stages of considering a possible offer for Shire", but cautioned that no offer had been made. With a debt pile of $30bn against a market value of $57bn the US company could struggle to structure a more attractive offer than Takeda's.

Under pressure

Given the substantial erosion in value that Shire investors have endured over the past couple of years, it is not surprising that management is adopting an open stance to these approaches. Pressure has been building on Shire’s chief executive, Flemming Ornskov, with investors and analysts becoming increasingly vocal about his need to act (Vantage view – Time for Shire’s Ornskov to face reality, March 29, 2018).

Long-suffering shareholders have watched Shire’s share price fall from a high of £56.85 in early 2015 to a low of £29.53 in March this year in the wake of the Baxalta acquisition. In light of this performance many will be very happy to accept a Takeda bid at this level, though the equity portion remains a dealbreaker.

A survey of Shire shareholders conducted by Bernstein analysts earlier this month concluded that £45 a share would seal the deal, though more than half of the amount would have to come in cash. The latest offer is made up of 62% equity, a huge proportion that Takeda will need to reduce significantly to keep Shire shareholders happy, according to the Bernstein research.

Thus the question is how far Takeda is willing to stretch itself to get this deal done. Analysts who cover Takeda believe that the firm is capable of offering a bit more cash, but getting it to above 50% of the bid value would be painful – particularly if the Japanese group is serious in its pledge to keep its investment grade and dividend after any Shire deal.

Takeda confirmed today that it was still bound by the April 25 deadline laid down by UK takeover authorities, so this will soon all play out. But the company’s own investors are nervous, and rightly so – Takeda’s US-listed ADRs were down 2% in morning trade, and in Japan the stock has dipped 10% since the saga began.

The deal would be massively transformative. Before news of these talks emerged the two parties’ market caps were similar, around $45bn for Takeda and $42bn for Shire. So while Takeda is the driving force here the deal is more of a merger of equals, one that would create a substantial new player on the global biopharma scene.

Of course the transaction would also involve a huge financing effort and substantial strategic risk. And, as Shire shareholders can attest, this sort of empire-building does not always end well.  

Global biopharma league by prescription drug sales
2017 sales ($bn) 2022e sales ($bn) CAGR 2017 market rank 2022e market rank
Novartis 41.9 51.2 4% 2 1
Roche 41.7 48.9 3% 3 2
Pfizer 45.4 47.9 1% 1 3
Johnson & Johnson 34.4 46.4 6% 5 4
Sanofi 33.7 42.0 5% 6 5
Abbvie 27.7 41.1 8% 8 6
Merck & Co 35.4 37.9 1% 4 7
Glaxosmithkline 28.7 35.8 5% 7 8
Shikeda* 27.5 32.8 4% - 9
Astrazeneca 19.8 28.7 8% 11 10
….
Shire* 14.4 17.2 3% 19 18
Takeda 13.1 15.7 4% 20 19
Source: EvaluatePharma. *Excludes planned oncology sale.

To contact the writer of this story email Amy Brown in London at AmyB@epvantage.com or follow @ByAmyBrown on Twitter

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