If at first you don't succeed...

Shire confirms the receipt of a revised acquisition proposal from Takeda, as the companies enter their fifth round of talks

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Persistence is key to success, and that's a motto Takeda Pharmaceutical Co. Ltd. is taking to heart as it continues to press its suit to acquire Shire plc. April 24 saw the companies enter their fifth round of talks exploring the possibility of a transaction.
The acquisition attempt began in late March, with a tentative proposal of £44.00 per share, though Shire released a statement confirming that an official offer had not been made. According to the Shire press release, per Rule 2.6(a) of the Code, Takeda has until the end of business hours London time on April 25 to either announce its intention to make an offer or state that it will not make an offer.
Though Takeda reiterated at the time that its “consideration of such an offer is at a preliminary and exploratory stage and no approach has been made to the Board of Shire,” Takeda also noted that the company “believes that a potential transaction with Shire presents an opportunity to advance Takeda’s stated Vision 2025, build on its current strong momentum and create a truly global, value-based Japanese biopharmaceutical leader.” Specifically, Takeda states that acquiring Shire would boost its presence in the areas of oncology, gastrointestinal and neuroscience; accelerate its goal to be a leader in specialized medicines, thanks to Shire's rare disease business; reinforce Takeda's R&D strategy as well as its late-stage pipeline; and enhance the company's geographic focus and financial profile.
In pursuit of those benefits, Takeda made a revised proposal to Shire's board of directors 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 discussions between the companies continued. A firm offer, according to Takeda at the time, would be subject to several conditions, including a due diligence review, unanimous approval by Shire's board of directors, Shire's board providing irrevocable undertakings to accept the transaction and approval by Takeda's own board of directors.

On April 20, Takeda announced an improved proposal of £47.00 per share, comprised of £21.00 in cash (to be paid in U.S. dollars) and £26.00 of new Takeda shares, an increase of roughly 7 percent over the original proposal of £44 per share and a proposal that offers a nearly 58-percent premium over Shire's closing share price on March 23 of £29.81. Takeda noted in a press release that it felt that “the Improved Proposal represents a highly compelling opportunity for Shire shareholders, which reflects a further increase in value and a material increase in the cash component of the consideration mix. On completion of the proposed acquisition, Shire shareholders would hold a very meaningful stake in a leading global biopharmaceutical company and benefit from the material synergies expected to be derived from the acquisition.”
On April 24, Shire's board confirmed the receipt of a revised proposal from Takeda, but said only that it was “considering its position.”
Despite rebuffing Takeda's proposals so far, Shire seems to still have some interest in coming to an acceptable offer for both parties, as in the very early hours of April 25 the company issued a press release announcing that, in light of a revised proposal, its board of directors had agreed to extend the deadline for a formal offer until 5 p.m. London time on May 8.
The revised proposal would offer 0.839 new Takeda shares and $30.33 in cash for each share of Shire stock, for an equivalent value of roughly £49 per Shire share and a total deal value of approximately $64 billion. Shire shareholders would hold approximately 50 percent of the combined company. Shire's board has said that it would be willing to recommend the revised proposal to the company's shareholders, pending satisfactory resolution of the other terms of the possible offer, such as completion of reciprocal due diligence by Shire on Takeda. The board intends to discuss exact terms of a firm offer with Takeda.
Reactions were mixed in the wake of the new proposal, with Shire's shares up about 3 percent while Takeda's dropped. In fact, Takeda's shares were down about 9.3 percent, the biggest drop in almost five years, according to a Bloomberg article by Lisa Du and Maiko Takahashi. “The market is seeing this acquisition as negative,” said Mitsushige Akino, an executive officer with Ichiyoshi Asset Management Co., in the Bloomberg article. “It is too big. Takeda might not be able to handle it.”
It's not an unfounded fear. Morningstar's Noemie Bisserbe noted in an April 21 article (originally published in The Wall Street Journal) that “A successful bid for Shire would mark Takeda's biggest-ever acquisition, creating a global drug giant with sales of about $30 billion a year. However, the Japanese company would likely have to take on significant debt to fund it. At roughly $50 billion, Shire's market value exceeds that of Takeda by more than $10 billion. Cheap funding rates in Japanese yen would make that more palatable, but the company is still digesting borrowing done for previous acquisitions. Although Takeda's net debt is now a manageable 1.8 times earnings before interest, taxes, depreciation and amortization, that would likely balloon if the company has to borrow for the Shire deal.”

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