- Takeda's proposed merger with Shire will be the last in Shire's life, and possibly the worst in Shire's 20-plus M&A deals since inception.
- A massive success story for Shire turned sour when management overstretched the company in a mega dilutive merger.
- Takeda is likely to face a similar fate to Shire by elevating debt levels and surrendering shares to merge with Shire.
- Share prices of Shire and Shire-Takeda are likely heading in a downward direction for the medium-term.
The recent observer might be tempted to think that the acceptance of the board of Shire, the Ireland-based, US-focused pharmaceutical group, of a bid by Japanese pharmaceutical company Takeda, is a fantastic achievement by Shire’s board. Takeda is offering London-listed Shire GBP 49 per share, a 69% premium to the GBP 29 per share that Shire traded at just before the acquisition was announced. It is a fascinating achievement indeed for the board of Shire – but unfortunately not for the long-term shareholders of Shire.
Shire is a group that was built on mergers and acquisitions in the rare diseases sphere. It has gone from humble beginnings to being a star in the global pharmaceutical sector. Until 2015, Shire was an innovative and cash-rich company, with organic revenue growth levels consistently in the high single digits and with high profitability – performance that was enviable by its peers in the pharmaceutical and biotech sector. It had managed to bridge the gap between being large and between actually making good money – a bridge many biotech companies never cross. It grew revenues by more than 40% between 2012 and 2015, and enjoyed a net cash position up until 2015.
Shire’s success was widely recognised in the pharmaceutical sector. In 2014, mega US pharmaceutical group Abbevie made a bid for Shire at GBP 53.19 per share, which was a 53% premium to its pre-announcement share price. The acquisition did not go through at the time, due to a change in US tax rules, but it resulted in a breaking fee of USD 1.64 billion paid by Abbvie to Shire, doubling Shire’s net income for 2014, and leading to increased confidence in a massively cash-rich Shire. Shire’s share price in the months after the failed acquisition reached GBP 55 per share – an all time high. Optimism was sky high.
Date: October 1, 2018
Want to publish your own articles on DistilINFO Publications?
Send us an email, we will get in touch with you.
Source: Seeking Alpha
