Japanese drug kingpin Takeda mulling approach for Shire

Japan's largest pharma group Takeda is considering a takeover bid for Irish rare disease specialist Shire.

Takeda said Wednesday that its deliberations were “at a preliminary and exploratory stage and no approach has been made to the board of Shire”. There was no certainty that an approach, if made, would lead to a transaction, it added.

Shares in London-listed Shire surged more than a quarter on the news. They closed 14 per cent higher at £35 in afternoon trade, giving it a market value of just under £32 billion (€36.5 billion).

Speculation that Shire might become an acquisition target has persisted for months, intensifying in recent days and prompting fluctuations in the company’s share price.

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Price volatility on Wednesday led the UK Takeover Panel to put pressure on Takeda to disclose whether or not it was preparing a move on Shire.

The Japanese drugmaker argues Shire would strengthen its Takeda’s core therapeutic areas of oncology, gastroenterology and neuroscience as well as adding “Shire’s leading global rare disease franchise”.

Any potential offer for Shire would have to meet its strict investment criteria, Takeda said, “including in relation to its dividend policy and credit rating, which are well-established”.

Analysts noted that, even before news of the potential takeover broke, the market cap of Takeda was only slightly above that of Shire. Taking into account a potential bid premium and also Shire’s substantial net debt of £13.5 billion, analysts argued that any successful bid might value the Irish drugmaker at around £50 billion (€57 billion).

Jack Scannell, co-head of pharmaceutical research at UBS, said: "We assume a potential offer would have to include a substantial percentage in equity and how Shire's board and shareholders would react is hard to predict."

This is not the first move on Shire. US drugmaker AbbVie in 2014 walked away from a planned $55 billion purchase of Shire after changes to US tax rules on corporate inversions that would have allowed it to take advantage of lower corporate tax rates overseas

Shire has been under pressure in the last year, with its shares down 24 per cent, due to greater competition from generic drugs and a debt pile that stems from its own biggest ever deal, the $32 billion acquisition of Baxalta in 2016.

Shire said it “noted” Takeda’s announcement and confirmed it had not received an approach.

The company moved to Ireland in 2008 after the then Labour government in the UK announced plans to increase taxation for corporates.

In the past 18 months, Shire has significantly increased its presence in Ireland . It is currently setting up a new biologics manufacturing plant on a 120-acre site in Dunboyne, Co Meath where it plans to employ 400 people. The €375 million investment will create the company's European quality control hub for its biologics portfolio.

It has also announced plans to add a further 150 people to its existing Dublin workforce, bringing the numbers there up to 300.

Since Flemming Ornskov took the helm five years ago, Shire has engaged in an aggressive strategy of expansion by acquisitions. Its market capitalisation has risen from £18 billion to about £33 billion, despite the weakness over the past year.

Last year, Mr Ornskov suggested investors were undervaluing his company, arguing that the potential of a number of promising drugs had yet to be factored into its share price.

The company reported better than expected revenues for 2017 last month – up by a third at $15.2 billion – but warned profits could fall this year because of competition from generic drugs.

– Copyright The Financial Times Limited 2018 / Reuters