Takeda's $62bn takeover of UK drug maker Shire gets go ahead

Biggest overseas acquisition by a Japanese company will see it joining the ranks of the world's top 10 drug makers and gaining expertise in rare diseases

Takeda Pharmaceutical global headquarters, centre, in Tokyo. The firm's shareholders have approved huge takeover. Bloomberg

Takeda Pharmaceutical shareholders approved on Wednesday its $62 billion takeover of London-listed Shire, creating a global powerhouse with a stronger drugs pipeline but one that is saddled with huge debt.

Takeda will be joining the ranks of the world's top 10 drug makers and gaining expertise in rare diseases through the deal, the biggest overseas acquisition by a Japanese company.

It will also become one of the most indebted. In addition to issuing new shares, the company has secured $30.9bn in bank loans.

The company's high debt levels were a top concern for shareholders who gathered at an extraordinary meeting in Osaka, western Japan, although almost 90 per cent of them voted to approve the deal as expected.

Takeda shares have fallen around 25 per cent since the drug maker revealed its interest in the acquisition in March. They closed up 1 per cent at ¥4,240 on Wednesday.

"I want to keep my Takeda shares into the future, but now I am worried about further declines in the share price," said Satoshi Ito, a 75-year-old shareholder. He abstained from voting, Reuter said.

Christophe Weber, the chief executive of Takeda Pharmaceutical, has faced a string of challenges in his  pursuit of Shire. The Japanese company’s shares have tumbled, dissident shareholders complained and Shire repeatedly rebuffed his bids before agreeing to a deal.

Now the Frenchman has scored a big victory with Takeda saying the deal received support from at least 88 per cent of votes at a special shareholders meeting Wednesday in Osaka. That clears one of the last hurdles for the biggest acquisition announced globally this year. Shire’s shareholders will vote later Wednesday, and if they approve the deal, it will be on track to close January 8.

Mr Weber is now poised to head one of the world’s biggest drug makers with lucrative therapies for rare diseases and a sizeable footprint in the US. But he faces pressure to ensure that the 237-year-old company holds on to its Japanese heritage even as it looks overseas for growth.

Takeda shares whipsawed between gains and losses in trading Wednesday in Tokyo. They were up 0.7 per cent at 1:03pm. The acquisition hasn’t helped the stock, which has fallen 24 per cent since the Japanese company announced its interest in Shire in March. Shire, meanwhile, has seen its shares rally, jumping 48 per cent since March 27.

The cash flow from the deal gives Takeda three to five years of added time to build up its own pipeline of experimental drugs, most of which are still in the early stages of development, Fumiyoshi Sakai, an analyst at Credit Suisse, said in a November 19 interview.

“Takeda is buying time,” Mr Sakai said. “In that sense, Shire is the perfect match to fill in the gap. Now is ¥7 trillion [Dh223.36bn] worth five years? That’s yet to be seen.”

Mr Weber is Takeda’s first foreign chief executive and one of the few senior international leaders left in Japan, a country already grappling with the recent ousting of Nissan’s iconic chairman, Carlos Ghosn, Bloomberg said. The Takeda CEO has sought to revive growth by revamping its research department and expanding overseas as the Japanese market slows.

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A small group of Takeda shareholders in Japan publicly campaigned against the Shire deal in recent months. Its members said they are primarily concerned with the financial risk of the added debt, as well as the impact on earnings and the company’s dividend. Some argued that Takeda would no longer be a Japanese company if the deal went through.

Takeda will benefit from a greater presence in the US, the world’s largest pharmaceutical market. Its portion of sales from the US will grow to 48 per cent of revenue from 34 per cent after it completes the purchase.

"The expansion of Takeda’s US footprint is a big part of the rationale for this deal," said Morningstar analyst Karen Andersen. Many of Shire’s products, particularly plasma and rare disease therapies, are sold to hospitals, which could give Takeda more leverage with negotiations for some of its own products, Andersen said in an email.

The combined company is also expected to benefit from $1.4bn in annual cost savings by the third year after the deal closes.

The acquisition is the largest ever overseas deal by a Japanese firm. Shire has headquarters in Ireland as well as an operational hub in the US. Takeda will have to successfully integrate a new business with a wide geographic reach and varied therapeutic areas to match its own style.

"I think Takeda and Shire have very different cultures," said UBS analyst Atsushi Seki. "So talent retention and the cultural merger between Takeda and Shire will be very important."

Among the small group of investors, who had actively opposed the deal were descendants of the company's founder.

"We are definitely against this because the financial risks are too great and the expected benefits are quite limited," said Kazuhisa Takeda, a former director of the drug maker and a member of the founding family, ahead of the meeting.

"I think M&A is quite necessary for Takeda's future but Shire is not the answer."

Takeda also has a plan to sell up to $10bn worth of non-core assets to pay back debt. Andy Plump, Takeda’s global head of R&D, told Reuters that it is necessary to accelerate deleveraging for keeping its credit rating at safe level.

"We have a plan for divestiture that gets us to a place in three to five years that our credit agencies are OK with. Our credit rating is likely to tick down a notch, but still above junk bond status, which is critical for us," he said in an interview.

Analysts said Takeda has little choice but to seek growth abroad, with industry pressure to gain access to cutting-edge treatments amid declining revenue from older drugs that must compete with cheaper generics.

Even with the acquisition of Shire, some said Takeda will need to bolster its line up of experimental therapies to compete in the longer term.

Shire's haemophilia business, for example, is already starting to face strong pressure from a competing drug being marketed by Roche as well as new gene therapies now in development.

"It's crucial whether the drug maker can reinvest profits from the deal into seeds for developing future drugs," said Kazuaki Hashiguchi, a senior drugs analyst at Daiwa Securities.

"The benefits of the deal will last for a limited time, as no treatments can avoid patent expiration."