Takeda’s $62 billion Acquisition of Shire


Overview of the deal

  • Acquirer: Takeda

  • Target: Shire

  • Estimated value: $62 bn

  • Announcement date: 08/05/18

  • Takeda Advisors: Evercore, JP Morgan and Nomura

  • Shire Advisors: Goldman Sachs, Citigroup and Morgan Stanley

After Takeda’s offers have been rejected four times, they have agreed to pay $62 bn for the rare disease specialist Shire - the largest takeover ever carried out by a Japanese company. The acquisition of Shire will move Takeda into the top 10 within the global pharmaceutical industry and leave Takeda with combined sales of nearly $30 billion pa.

The integration of Shire will give access to new market segments for Takeda, while at the same time enabling the company to expand its geographical reach. The deal will increase market share in the US, the world's largest pharmaceutical market, in which Shire generates two-thirds of its revenues. The deal will also add new drugs to Takeda’s shrinking pool of patent-protected products.

The offer consists of 46% cash and 54% stock, leaving Shire shareholders owning about half of the company. Investors will receive either 0.839 in new Takeda shares as well as $30.33 in cash or 1.678 Takeda Depositary shares for each share. In all, the offer represents a 69% premium to the stock price Shire traded at just before the acquisition was announced.

“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

Company details (Takeda)

Takeda is the largest pharmaceutical company in Japan and Asia and a top 15 pharmaceutical company in the world. The company is focused on metabolic disorders, gastroenterology, neurology and inflammation.

- Founded in 1781, headquartered in Osaka, Japan

- CEO: Christophe Weber

- Number of employees: 29,900

- Market Cap: $30.9 bn - EV: $43.1 bn

- LTM Revenue: $16.7 bn - LTM EBITDA: $3.6 bn

- LTM EV/Revenue: 2.6x - LTM EV/EBITDA: 12.1x

Company details (Shire)

Shire is a global biopharmaceutical company focused on neuroscience and rare diseases. The company’s products are available in more than 100 countries across core therapeutic areas.

- Founded in 1986, headquartered in Jersey, USA

- CEO: Flemming Ørnskov

- Number of employees: 22,000

- Market Cap: $45.4 bn - EV: $65.8 bn

- LTM Revenue: $11.2 bn - LTM EBITDA: -$5.1 bn

- LTM EV/Revenue: 5.9x - LTM EV/EBITDA: -12.9x

Projections and assumptions

  • Short-term consequences

The acquisition will allow Takeda to boost its global presence. Shire operates in over 100 countries and is highly competitive in the US, while Takeda is primarily active in Japan and emerging markets. The opportunity to tap into the US market brings the greatest upside potential as it is by far the largest pharmaceutical market, accounting for 40% of the industry’s total annual revenue, and it also has the second highest growth rate.

Furthermore, the deal will enable Takeda to get hold of Shire’s portfolio of rare disease medicines, which have significantly higher profit margins than conventional drugs. Coupled with the geographical expansion, this should consequently boost earnings. Takeda plans to use the generated cash flow from the combined company to structure a quick pay-down on the debt part of the acquisition. The goal is to keep their investment-grade rating while targeting a debt/EBITDA ratio of around 2x or less in a few years. However, it is worth noting that the ratio will be as high as 5x EBITDA if the deal closes. Takeda also expects its ROIC to exceed its WACC one year after the acquisition.

As for the financial institutions, M&A advisors are not the only part that stands to benefit from the transaction as several investment banks are competing to underwrite the stock and bond issues that will finance the deal past a $31 billion bridge loan.

  • Long-term upsides

The deal will solve a major strategic issue for Takeda. Japan’s population is forecasted to shrink by about one-third in the next five decades and drug sales are falling. This coupled with annual drug price revisions made by the government emphasises the need of an expansion overseas. As previously stated, Shire generates the majority of its revenue in the US where the long-term outlook looks far more promising and pricing is more permissive. Hence, they will not only be able to reap the benefits