Takeda's long battle for US$62b Shire acquisition clears shareholder hurdle

Tokyo

CHRISTOPHE Weber, the chief executive officer of Takeda Pharmaceutical Co, has faced a string of challenges in his US$62 billion pursuit of UK-listed drugmaker Shire plc. The Japanese company's shares tumbled, dissident shareholders tried to derail the deal, and Shire repeatedly rebuffed his initial bids.

Now, the Frenchman has scored a key victory with Takeda saying that the deal received support from at least 88 per cent of votes at a special shareholders meeting on Wednesday in Osaka. That clears one of the last hurdles in the nine-month campaign to secure Shire.

The vote represents a clear endorsement of Mr Weber's vision to transform the 237-year-old company into a top 10 drugmaker with lucrative therapies for rare diseases and a sizable footprint in the US. The scope of the combination underscores Mr Weber's ambitions - it is the biggest acquisition announced globally this year, and the largest overseas takeover ever by a Japanese company.

Takeda shares rose 1.1 per cent in trading on Wednesday in Tokyo. The stock is still down 23 per cent since the Japanese company announced its interest in March. Shire rose 3.6 per cent in early London trading, lifting it near the offer price. The shares have jumped 53 per cent since March 27.

Shire's shareholders will vote later on Wednesday, and the agreement is set to close on Jan 8.

The deal came with a price - Takeda has to shoulder more than US$30 billion in additional debt. Mr Weber also faces pressure to ensure that the company which began in the 18th century by selling herbal therapies retains its Japanese heritage. Yet the Shire takeover is a key part of his strategy for survival - a way for Takeda to deal with a drying pipeline of late-stage drugs.

The cash flow from the transaction 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, said Fumiyoshi Sakai, an analyst at Credit Suisse Group AG, in a Nov 19 interview.

"Takeda is buying time," Mr Sakai said. "In that sense, Shire is the perfect match to fill in the gap. Now, is seven trillion yen (S$84.7 billion) worth five years? That's yet to be seen."

Shareholder approval also bolsters Mr Weber's own position. He is Takeda's first foreign chief executive officer, and one of the few senior international leaders left in Japan - a country already grappling with the recent ouster of Nissan Motor Co chairman Carlos Ghosn.

The investor vote is also a rejection of the views of a small group of Takeda shareholders in Japan who publicly campaigned against the Shire deal, arguing that the company would no longer be a Japanese business. The group's members are primarily concerned with the financial risk of the added debt, as well as the impact on earnings and the company's dividend.

At least one member of the dissident group seems to have moved beyond his opposition and is now looking to Takeda's future.

"It would be great if things could go as well as Weber said it will in the long term, and the stock returns to its original level or even higher," Katsuhiko Ogino, 82, a former Takeda employee, said in Osaka. "I do think, fundamentally, the company needs to internationalise."

While Mr Weber has pledged to keep Takeda's Japanese roots, the globalisation push will give it a greater presence in the US, the world's largest pharmaceutical market. Its portion of sales from the region 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, she added.

The benefits of US exposure greatly outweigh any uncertainties tied to pricing pressure in the country, said UBS Group AG analyst Atsushi Seki. "In the US, innovation will still be rewarded even though price increases are probably difficult in this era," he said. "After this deal, Takeda's US exposure will be nearly half of revenues - I think that's the beauty of this deal."

When Takeda and Shire arrived at an agreement in May, the US$62 billion cash and stock deal was the largest announced globally this year, data compiled by Bloomberg show. The value has since declined with the slumping stock price.

The acquisition is part of an unprecedented foreign acquisition wave this year. Japanese companies have stepped up their deal hunt in a search for growth at the same time when China's most prolific dealmakers have been hobbled by regulatory probes and new outbound investment rules.

Japanese purchases overseas have more than doubled this year to US$173 billion, while deals from China have fallen nearly 25 per cent to US$114 billion, data compiled by Bloomberg show.

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

Takeda's leverage will be about five times its earnings after taking on the US$30 billion of debt to buy Shire, as well as Shire's US$13.7 billion of net debt. The company has said that one way to quickly reduce debt would be to sell as much as US$10 billion of assets. Medicines like Shire's eye drug and Takeda's over-the-counter drug business in Europe are being considered as potential disposals.

With the deal sealed, Shire - with headquarters in Ireland and an operational hub in the US - will be Mr Weber's new task. Takeda will have to successfully fold in 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's Mr Seki. "So talent retention and the cultural merger between Takeda and Shire will be very important." BLOOMBERG