March 28, 2018 / 9:41 AM / 24 days ago

Drugmaker Shire soars as Japan's Takeda considers bid

LONDON/TOKYO (Reuters) - Japan’s largest drugmaker Takeda Pharmaceutical (4502.T) is considering a bid for London-listed rare disease specialist Shire (SHP.L) that could top $40 billion and spark another takeover battle in the deal-hungry pharma industry.

Takeda said on Wednesday it was “at a preliminary and exploratory stage” of considering a bid, sending Shire’s shares up as much as 26 percent. They ended 15.7 percent higher, valuing the group at around 32 billion pounds ($45 billion).

Shire sells treatments for rare diseases and attention deficit disorder. Takeda said buying it could create a global biopharmaceutical leader, boosting its position in the United States, oncology, gastrointestinal diseases and neuroscience.

The drugs industry has seen a surge in dealmaking as large players look for promising assets to improve their pipelines.

In recent months, France’s Sanofi (SASY.PA) agreed to buy U.S hemophilia specialist Bioverativ BIVV.O for $11.6 billion and Belgium’s Ablynx (ABLX.BR) 3.9 billion euros. Before that, U.S.-based Celgene (CELG.O) bagged cancer specialist Juno Therapeutics JUNO.O.

The prospect of a bid for Shire, 57 percent of whose employees are based in North America, immediately stoked expectations for a takeover battle.

“Takeda publicly saying it is considering an approach for Shire inevitably means that other big pharma players including AbbVie, Novartis, Pfizer et al will equally be running the numbers with a very high likelihood of leading to a competitive M&A multi-bidder situation,” said Michael Wegener, managing partner at hedge fund Case Equity Partners, which has a stake in Shire.

Others shared that view.

“We expect most large pharma companies have a takeout model of Shire and the Takeda’s announcement will force them to make a decision whether they want to step up,” said Bernstein analyst Wimal Kapadia, also pointing to Pfizer (PFE.N) and Abbvie (ABBV.N), in particular.

VALUATION APPEALS

U.S. drugmaker AbbVie in 2014 walked away from a planned $55 billion purchase of Shire after changes to U.S. tax rules that would have allowed it to take advantage of lower corporate tax rates overseas.

Analysts pointed to Shire’s relatively low market value as helping to attract suitors. At 8.2 times expected core earnings, its market value including debt ranks well below most of its European peers, according to Thomson Reuters data.

Takeda said it had not approached Shire’s board. Under UK takeover rules, it has until April 25 to decide whether to make a bid.

Shire said it noted Takeda’s statement, and confirmed it had not received an approach.

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

The company said in January that it would run its attention deficit hyperactivity disorder (ADHD) business, which consists mainly of its blockbuster drug Vyvanse, as a distinct business and possibly seek a separate listing.

FRENCH CEO

Takeda, Japan’s largest drugmaker by sales, focuses its research on developing treatments for cancer and diseases of the digestive and nervous systems.

It has made no secret of its ambition to become a more global company through acquisitions, although buying Shire would be the boldest move yet by its French CEO Christophe Weber.

“Clearly defined strategic and financial objectives are core to Takeda’s disciplined approach to acquisitions, including in relation to its dividend policy and credit rating, which are well-established,” Takeda said in a statement.

“Any potential offer for Shire, if made, would have to align with this strict investment criteria.”

The statement came after Takeda’s shares had closed 1.9 percent lower on the Tokyo stock exchange.

Analysts at Deutsche Bank and Bernstein Research said, given the two companies’ debt burden, Takeda is likely to make a considerable part of any bid in the form of its own shares.

Not including Wednesday’s share surge, Shire is roughly on par with Takeda in terms of stock market value.

Weber, a former GSK executive, was appointed CEO in April 2015 and has already done a number of deals.

In January, Takeda agreed to buy Belgian biotech group TiGenix NV (G9U.BR) for 520 million euros, funding the deal with cash on hand, and last year, it bought U.S. cancer drug specialist Ariad for $5.2 billion. Takeda’s overseas deals mirror those by other Japanese companies, which are facing bleak prospects at home as a rapidly shrinking population weighs on domestic demand.

    ($1 = 0.7061 pounds)

    ($1 = 106.2200 yen)

    Additional reporting by Ludwig Burger in Frankfurt, Rahul B in Bengaluru, Paul Sandle and Maiya Keidan in London and Ben Hirschler in New York; Editing by Keith Weir and Mark Potter

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