Portfolio

Shire surges as Allergan confirms interest after Takeda rejected

By Oliver Haill

Date: Thursday 19 Apr 2018

Shire surges as Allergan confirms interest after Takeda rejected

(WebFG News) - Shire has received and rejected a takeover approach from Japan's Takeda Pharmaceutical, but was later confirmed to be in talks with US giant Allergan.
Allergan, which is based in the US but is like Shire headquartered in Dublin, confirmed that it was in talks to acquire the British drug maker, but was still in "the early stages of considering a possible offer".

Earlier, Shire confirmed that it had rejected an approach from the smaller Japanese company at a price equivalent to £46.50 per share, comprised of £17.75 in cash and £28.75 of new Takeda shares, which would be listed in Japan and in the US. Such a bid would value on Shire of £42bn, excluding its $19.1bn of debt.

Shire noted that this was the third approach from Takeda, following a £44 proposal comprising £28 of Takeda shares and £16 per share in cash, a £45 proposal comprising £28.75 shares and £16.75 cash.

The FTSE 100 company said that it unanimously rejected Takeda's proposal, having thoroughly considered the matter with its advisers, as "it continues to significantly undervalue the company and Shire's growth prospects and pipeline".

Takeda's board stressed that it will "remain disciplined with respect to the terms of any such offer" as it wants to keep its dividend policy and investment grade credit rating. Takeda has until 25 April to 'put up or shut up' under UK Takeover Panel rules.

With a $57.7bn market cap, Allergan is bigger than Takeda's near-$40bn but only not massively larger than Shire's current £38bn ($51m) with its shares around the 4,000p level. Allergan also had roughly $30.1bn in debt and $6.45bn cash at the end of its financial year, though since then it has kicked off a $15bn stock buyback and paying down some of the debt.

Allergan has until 17 May under the Takeover Code's put-up or shut-up rules.

Earlier this week, Shire agreed to sell its oncology business to Servier for $2.4bn in cash, representing 9.2 times 2017 revenues. Chief executive Flemming Ornskov said proceeds from the transaction will "increase optionality" and could be returned to shareholders via a buyback after the Takeda offer period concludes.

Ornskov's pay came in for criticism overnight, as he faces a busy end of month, with an annual general meeting on 24 April and first-quarter results on 26 April. Influential shareholder body Pensions & Investment Research Consultants (PIRC) said it felt the CEO's maximum potential bonus was "excessive" at 780% of his salary.

Shire shares rose more than 6% to top 4,000p for the first time since September.

Before any specific offer was confirmed, Barclays issued a sceptical note. Analysts noted that a Takeda takeover "is likely to involve a large paper element", given the "improbability" of Takeda raising the equivalent of greater than its own market cap in credit and /or equity financing for an outright takeover.

Even if the offer came at a suitably attractive price point, itself made more challenging given the recent decline in its share price, the analysts felt it would be likely to "further complicate the path to potential consummation given likely limited appeal for many investors in holding combined Takeda/Shire equity".

Even though a sizeable subgroup of Shire investors are felt likely to be happy to crystallise an exit within a reasonable valuation range, Barclays "continue to believe the offer would need to be meaningfully in excess of £40/sh to stand a reasonable chance of success".

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