Mergers & Acquisitions

Japan’s Takeda clinches US$62 billion deal to buy rival drug maker Shire

The deal would push the Japanese firm into the top 10 global drug firms as it searches for new growth

PUBLISHED : Tuesday, 08 May, 2018, 5:37pm
UPDATED : Tuesday, 08 May, 2018, 5:37pm

Takeda Pharmaceutical has reached an agreement to buy larger rival Shire Plc for about £46 billion pounds (US$62 billion) in a deal that will transform it into a top drug maker in the lucrative business of rare diseases and will boost its heft in the US.

The Japanese company capped a drawn-out pursuit by agreeing to pay Shire £49.01 a share in cash and stock, based on Takeda’s closing share price on April 23, according to a statement on Tuesday. In pounds, that is the same value as a preliminary agreement the companies reached last month.

To help fund the cash portion of the deal, Takeda said it had secured a bridging loan facility of US$31 billion with JPMorgan Chase Bank, Sumitomo Mitsui Banking Corp and MUFG Bank, among others. Shire shares rose as much as 5.7 per cent early on Tuesday in London, while Takeda rose 4 per cent in Tokyo before the deal was announced.

The acquisition would be the largest ever for a Japanese company, and would vault Takeda into the top 10 of global pharmaceutical giants. Chief executive Christophe Weber, the first foreigner to lead the 237-year-old Japanese company, is seeking growth in new markets amid patent expirations and drug pricing pressures at home.

“Shire’s highly complementary product portfolio and pipeline, as well as experienced employees, will accelerate our transformation for a stronger Takeda,” Weber said in the statement.

With few late-stage experimental drugs in its own pipeline, Takeda needs lucrative new therapies. A Shire takeover brings Takeda treatments for rare diseases such as haemophilia – a field that is luring a growing number of drug makers who can charge more for unique life-saving drugs than for routine treatments.

The deal also increases Takeda’s exposure to the US, the world’s biggest pharmaceutical market. Shire, based in Lexington, Massachusetts, gets more than two-thirds of its revenue from North America. Takeda generates only 30 per cent of its sales from the region.

The Japanese drug maker increased its bid for Shire multiple times over the past month. The companies indicated in late April they had reached a preliminary deal valued at £46 billion, or US$64 billion, based on a stronger exchange rate for the pound at the time.

Takeda faced a deadline of Tuesday set by UK regulators to make a firm offer for Shire, walk away or extend the deadline.

The agreement offers US$30.33 in cash and either 0.839 new Takeda shares or 1.678 Takeda American depositary receipts. It represents a 60 per cent premium to Shire’s closing price on March 27, before Takeda disclosed its interest.

While the deal would boost Takeda’s earnings potential, it also comes with risks. Japanese investors have worried about the hefty debt, with Moody’s Investors Service warning last month that Takeda could face a multiple-step credit downgrade due to a “spike in leverage.”

Takeda said the deal will save about US$600 million in duplicated research and development costs. The company expects US$1.4 billion in overall savings by the third year.

“The cost synergies seem to be much bigger than expected in the next three years,” Credit Suisse analyst Fumiyoshi Sakai said.

Takeda, which has seen its market value slide to US$34 billion since announcing its interest, is taking over a much bigger rival. Shire’s shares have soared 31 per cent, giving the company a market capitalisation of about US$50 billion.

A completed deal would dwarf Softbank’s US$40 billion purchase of Sprint in 2013, which ranked as the biggest takeover by a Japanese company. Takeda’s largest previous purchase was a US$13.7 billion takeover of Nycomed in 2011. Last year, the company expanded its footprint in the US oncology market with the US$4.7 billion purchase of Ariad Pharmaceuticals.

Takeda’s announcement comes amid a flurry of transactions in the pharmaceutical sector, marked by GlaxoSmithKline’s agreement in March to buy out Novartis’ stake in their consumer health joint venture. Merck has agreed to sell its over-the-counter unit to Procter & Gamble, while Sanofi plans to sell its European generic-drug business to buyout firm Advent International.

Takeda said it would maintain its headquarters in Japan and would evaluate consolidating Shire’s operations into Takeda’s in the Boston area, in Switzerland and in Singapore.