Signage for Takeda Pharmaceutical Co. is displayed on the exterior of the company’s building in Cambridge, Massachusetts, U.S. (Photographer: Scott Eisen/Bloomberg)

Takeda Moves to Join Pharma Giants With $62 Billion Shire Deal

(Bloomberg) -- Takeda Pharmaceutical Co. is joining the drug industry’s giants with Japan’s biggest overseas takeover -- a $62 billion deal for much larger rival Shire Plc.

Chief Executive Officer Christophe Weber capped a drawn-out pursuit of the U.K.-listed company with an acquisition he described as transformational that will give Takeda wider reach into the world’s biggest drug market and strengthen its global pipeline for lucrative drugs that treat rare diseases.

“The two combined create a rich pipeline in all stages -- early and late stage, which is very important," Weber said on a call after the deal was announced Tuesday. “We are in a good momentum and in a strong position.”

Takeda’s largest acquisition would catapult the company into the top 10 within the global pharmaceutical industry and add drugs like Shire’s Adderall for attention deficit hyperactivity disorder to its roster. Weber, a Frenchman who is the first foreigner to lead the 237-year-old Japanese firm, is seeking growth in new markets and rare-disease treatments, which offer higher profit margins, amid patent expirations and drug pricing pressures at home.

After fielding multiple bids for Shire, it was the fifth proposal -- a preliminary agreement the two companies reached last month -- that finally stuck. The Japanese company will acquire Shire for 46 billion pounds, or 49.01 pounds a share in cash and stock, according to a statement.

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

The bridge loan will be refinanced with a combination of long-term and hybrid debt, as well as cash, Weber said. The company could also consider issuing shares, he added.

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 hemophilia -- a field that’s luring a growing number of drugmakers that can charge more for unique life-saving drugs than for routine treatment.

The deal increases Takeda’s exposure to the U.S., 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 percent of its sales from the region.

Takeda had raised its bids over a six-week chase and agreed on a 60 percent premium to Shire’s closing price on March 27, before Takeda disclosed its interest. The agreement offers $30.33 in cash and either 0.839 new Takeda shares or 1.678 Takeda American depositary receipts.

The companies indicated in late April they had reached a preliminary deal valued at $64 billion, based on a stronger exchange rate for the pound at the time.

Takeda’s financial advisers included Evercore Inc., JPMorgan Chase & Co. and Nomura Holdings Inc., while Shire received financial advice from Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc.

While the deal would boost Takeda’s earnings potential, it also comes with risks. Japanese investors have worried about the hefty debt. S&P Global Ratings placed Takeda on a watch and warned it may lower the company’s ratings by up to two notches, it said in a statement Tuesday.

Moody’s Investors Service warning last month that Takeda could face a multiple-step credit downgrade due to a “spike in leverage.”

READ: Takeda’s ‘Scary’ Debt for Shire Deal Fuels Credit Market Concern

Takeda said the deal will save about $600 million in duplicated research and development costs. The company expects $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.

Bigger Rival

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

A completed deal would dwarf SoftBank Group Corp.’s $40 billion purchase of Sprint in 2013, which ranked as the biggest takeover by a Japanese company. Takeda’s largest 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.

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

The company expects it may reduce the combined workforce by 6 percent to 7 percent in the three years after the takeover, it said.

©2018 Bloomberg L.P.

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