An agreement at last

Shire commits to Takeda’s latest acquisition offer of roughly $62 billion

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OSAKA, Japan—Takeda Pharmaceutical Co. Ltd. is going to be seeing a sizable growth spurt soon, as the company has announced that it has reached an agreement with Shire plc on the terms of a recommended offer. Pursuant to this offer, Takeda will acquire all of Shire’s issued and to-be-issued ordinary share capital, in a transaction that has been approved by both Takeda’s and Shire’s boards of directors. Under the agreement, each shareholder of Shire stock will receive $30.33 in cash for each share they hold, as well as either 0.839 new Takeda shares or 1.678 Takeda American depository shares, for a total deal value of approximately $62 billion. The deal is expected to close in the first half of next year, at which point Takeda shareholders will own roughly 50 percent of the combined group.
The acquisition will boost Takeda’s holdings in gastrointestinal and neuroscience, areas in which both companies have a footprint, increasing Takeda’s presence in the United States. The combined company will be headquartered in Japan, with major regional locations in Singapore, Switzerland and the United States. Shire is a leader in the field of rare diseases, and also brings with it expertise in gene therapy and recombinant proteins, in addition to a diverse pipeline of mid- and late-stage programs. Morningstar’s Preetika Rana noted that should the acquisition go through, it will create “the world’s eighth-largest drugmaker, with combined sales worth $30 billion.”
Following the closing of the deal, 75 percent of the combined entity’s total sales will come from oncology, gastroenterology, neuroscience, rare diseases and plasma-derived therapies. As Takeda President and CEO Christophe Weber noted in a conference call, the company will have “a relatively balanced pipeline by stage,” with 13 programs in Phase 2 and 10 in Phase 3.
“Over the last 30 years, Shire has become the global leader in treating rare diseases, delivering innovative products that transform patients’ lives,” Susan Kilsby, chairman of Shire, said in a press release. “With this combination, Shire helps create an even stronger biopharmaceutical company, with a robust R&D pipeline and expanded global footprint.  We are proud of what Shire has become and are grateful to all Shire employees for their contributions. We firmly believe that this combination recognizes the strong growth potential of our leading products and innovative pipeline and is in the best interests of our shareholders, our patients and the communities we serve.”
“Since its inception, Takeda has transformed into an agile, R&D-driven global pharmaceutical company that is well-positioned to deliver innovative and transformative care to patients around the world,” added Weber. “Shire’s highly complementary product portfolio and pipeline, as well as experienced employees, will accelerate our transformation for a stronger Takeda. Together, we will be a leader in providing targeted treatments in gastroenterology, neuroscience, oncology, rare diseases and plasma-derived therapies. We are looking forward to the benefits this combination will bring to patients worldwide, the opportunities it will bring for our employees and the returns it will deliver for our shareholders.”
It’s been a long road for Takeda to secure Shire’s agreement on a deal. The acquisition attempt began in late March, with a tentative proposal of £44 per share, though Shire released a statement confirming that an official offer had not been made. Takeda made a revised proposal to Shire’s board on April 12 to acquire Shire’s entire issued and to be issued share capital for a price equivalent to £46.50 per share, comprised of £17.75 in cash (to be paid in U.S. dollars) and £28.75 of new Takeda shares, for a total transaction value of about $60 billion. Shire rejected the proposal, but on April 20, Takeda announced an improved proposal of £47 per share, comprised of £21 in cash (to be paid in U.S. dollars) and £26 of new Takeda shares—an increase of roughly 7 percent over the original proposal and a nearly 58-percent premium over Shire’s closing share price on March 23 of £29.81.
On April 24, Shire’s board confirmed the receipt of a revised proposal from Takeda, but said only that it was “considering its position.” In the very early hours of April 25, the company issued a press release announcing a revised proposal and that its board of directors had agreed to extend the deadline for a formal offer until 5 p.m. London time on May 8.
This final offer came in just under that wire, with Takeda announcing its proposal and the boards’ acceptance on May 8.
Though the boards and management stand behind the deal, shareholders are a bit more uncertain. Kristine Harjes commented in a recent clip from The Motley Fool’s “Industry Focus: Healthcare” on May 14 that “[J]ust today, Moody’s actually downgraded Takeda, and they stated that the downgrade was reflective of their previous debt levels—meaning, not even with this news of how they plan on financing an acquisition of Shire—and that they will need to reevaluate if the deal goes through as proposed.”
Morningstar’s Rana said that the deal had some shareholders “worrying … that it was piling on too much debt. Last year, it borrowed money to acquire U.S. cancer-drug company Ariad Pharmaceuticals Inc. for $5 billion.” And it’s not an unfounded concern—for the Shire acquisition, Takeda has established a bridge facility agreement with J.P. Morgan Chase Bank N.A., Sumitomo Mitsui Banking Corporation and MUFG Bank, Ltd., among others, to the tune of $30.85 billion.
Takeda noted in its announcement, however, that the transaction is expected to be significantly accretive to underlying earnings per share from the first full fiscal year following completion, and should result in strong combined cash flows. The company also expects the return on invested capital to exceed its cost of capital within the first full fiscal year after completion, which should be promising returns for shareholders. Recurring pre-tax cost synergies for the combined company are expected to reach a run-rate of at least $1.4 billion per year by the end of the third fiscal year after the deal is completed. Weber added in the company conference call that “We are able to be committed to our established dividend policy,” which should please shareholders.
“There is a strategic fit, because we are reinforcing two therapy areas: GI and neuroscience,” Weber said in the call. “We are adding on top of our therapy areas—which are GI, oncology and neuroscience—the rare disease area, and the plasma-derived therapies … There is a strategic fit because it is a very defined expansion of our therapy areas. The pipelines are very complementary. We have the ability to really create a global, R&D-driven biopharmaceutical leader headquartered in Japan with a very balanced geographic footprint for the future, which is very appealing.”

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