(Bloomberg) -- It’s back to Takeda Pharmaceutical Co.’s move in the battle over the future of Shire Plc.
In a dramatic turn, Allergan Plc on Thursday said it was considering making an offer for Shire, but then hours later said it wouldn’t make a bid. That came after Shire rejected Takeda’s proposal of 46.50 pounds ($65.50) a share -- that’s worth about $60 billion. Shire said the current terms “significantly undervalue the company and Shire’s growth prospects and pipeline,” though added it’s willing to negotiate.
Takeda’s now the sole public suitor, pushing for what would be the biggest takeover by a Japanese company of an overseas target. Investors have been skeptical about Takeda’s ability to go after a drugmaker with a bigger market capitalization, and have raised concerns about the risk of taking on more debt.
"The scale of this deal is honestly a little big,” Naoki Fujiwara, chief fund manager for Shinkin Asset Management Co., which holds a position in Takeda, according to data compiled by Bloomberg. “From the management’s perspective, Takeda has limited options to expand, and may need to find some other way toward growth."
Takeda’s shares slumped as much as 4 percent in early Tokyo trading. Shire’s stock rose and fell during U.S. hours as investors took in the prospect of a bidding war. Its American depositary receipts closed down 1.1 percent to $160.74 a share in New York.
Takeda has been ramping up its takeover ambitions under Chief Executive Officer Christophe Weber, as the company seeks growth overseas amid patent expirations and a shrinking domestic population. A Shire takeover would be by far Takeda’s largest-ever deal. Its most expensive previous purchase was a $13.7 billion takeover of Nycomed A/S in 2011. Last year, the company expanded its footprint in the U.S. oncology market with the $4.7 billion purchase of Ariad Pharmaceuticals Inc.
The size of a Shire deal has given some investors pause. Takeda’s most recent bid is a 51 percent premium to Shire’s closing price on March 27. Analysts have noted that Takeda may need to boost the cash portion of its offer -- currently 62 percent is in stock. In addition, the presence of other bidders could push Takeda out into the cold.
“If there are other bidders obviously it makes it a lot harder for Takeda,” said John Schroer, sector head of U.S. health care at Allianz Global Investors. “How will they compete?”
Takeda said in a statement Thursday that discussions with Shire are continuing. The company has until April 25 to make a formal offer or walk away under U.K. rules governing Shire, which is based in Lexington, Massachusetts, but trades in London.
Takeda’s interest in Shire comes amid a flurry of transactions in the pharmaceutical sector, marked by GlaxoSmithKline Plc’s $13 billion agreement last month to buy out Novartis AG’s stake in their consumer-health joint venture. Merck KGaA has agreed to sell its over-the-counter unit to Procter & Gamble Co. for $4.2 billion, while Sanofi plans to sell its European generic-drug business to buyout firm Advent International Corp.
Shire has been here before. In 2014 it managed to talk AbbVie Inc. up from an initial offer of 46.26 pounds per share, most of it in stock, to 53.20 pounds per share. AbbVie walked away from the deal a few months later, after proposed changes to U.S. tax rules would have made the takeover more difficult.
Activist investor Sachem Head Capital Management, which owns a stake in Shire, has been pushing for a sale of the company, according to people familiar with the matter. Sachem has also been pressuring Shire to review other strategic alternatives, according to the people, who asked not to identified because the discussions are private. A representative for Sachem Head declined to comment on the matter.
Shire had been battling a slumping share price. Its stock had dropped 35 percent in the year prior to March 27, the day before Takeda’s interest in the company first emerged.
Investors were worried that the hemophilia business Shire won in its $32 billion takeover of Baxalta in 2016 would lose ground sooner than anticipated to a competing therapy from Roche Holding AG. Shire had recently been exploring options, including possibly spinning off its rare-disease and neuroscience businesses.
“Shire has fallen out of favor with investors, it sells at an extremely low valuation which I think is what has triggered the interest of Takeda,” said Allianz’s Schroer.
©2018 Bloomberg L.P.