Japan’s Takada to acquire London-listed Shire for $59 billion

Following the takeover Takada will join the ranks of the world’s top 10 drugmakers and will gain expertise in rare diseases, at the cost of a mountain-load of debt.

On Wednesday, shareholders of Takeda Pharmaceutical approved the $59 billion takeover of Shire, thus creating a global pharmaceutical powerhouse albeit one that is saddled with a mountain-load of debt.

Following the deal, Takeda will join the ranks of the world’s top 10 drugmakers and will gain expertise in rare diseases.

The deal marks the biggest overseas acquisition by a Japanese company.

With the deal, Takeda also joins the ranks of one of the most indebted companies; while it has secured $30.9 billion in bank loans, it has also issued new shares. High debt levels have been a concern to shareholders although nearly 90% voted in favor of the deal.

“I want to keep my Takeda shares into the future, but now I am worried about further declines in the share price,” said Satoshi Ito, a 75-year-old shareholder who abstained from voting.

A small group of investors, including descendants of the company’s founder, had actively opposed the deal.

“We are definitely against this because the financial risks are too great and the expected benefits are quite limited,” said Kazuhisa Takeda, a former director of the drugmaker and a member of the founding family, ahead of the meeting. “I think M&A is quite necessary for Takeda’s future but Shire is not the answer.”

Christophe Weber, Takeda’s Chief Executive has promised to deliver on the deal by slashing costs. He has forecast annual savings of at least $1.4 billion three years after completion of the deal and expects earnings to rise from the first full year after closing.

Takeda also plans on selling up to $10 billion worth of non-core assets to repay debts. As per Andy Plump, Takeda’s global head of R&D, this is a necessary step since it will accelerate deleveraging and keep its credit rating at a safe level.

“We have a plan for divestiture that gets us to a place in three to five years that our credit agencies are OK with. Our credit rating is likely to tick down a notch, but still above junk bond status, which is critical for us,” said Plump.

According to analysts, integrating the two companies are likely to be difficult.

Case in point: Toshiba Corp’s acquisition of Westinghouse over a decade ago and Japan Post Holdings Co’s $4.9 billion bet on Toll Holdings serve as prime examples of Japanese companies paying a price in cross-border deals only to face massive write-downs years later.

In the same breath, analysts also admit that Takeda has little choice but to seek growth abroad: industry pressure is increasing to gain access to cutting-edge treatments midst declining revenues from older drugs that must compete with cheaper generics.

Even after acquiring Shire, Takeda will need to bolster its lineup of experimental therapies, to better position itself in the long term, said analysts.

“It’s crucial whether the drugmaker can reinvest profits from the deal into seeds for developing future drugs,” said Kazuaki Hashiguchi, a senior drugs analyst at Daiwa Securities. “The benefits of the deal will last for a limited time, as no treatments can avoid patent expiration.”

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