Takeda Closes In on Shire -- WSJ

By Preetika Rana and Peter Landers

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 26, 2018).

Takeda Pharmaceutical Co. is near a deal worth more than $60 billion to buy European drugmaker Shire PLC, having raised its bid four times in a sign of how ardently Japan's legacy companies are chasing growth abroad as sales at home slow.

Shire said Wednesday it would recommend shareholders accept Takeda's fifth offer -- $30.33 in cash and 0.839 Takeda share for each Shire share -- culminating a weekslong effort by the Osaka-based company. It has until May 8 to complete a deal.

The acquisition would be the biggest to date by a Japanese company of a Western one, according to Dealogic, and create the world's eighth-largest drugmaker by sales. Buying the Dublin-based maker of rare treatments would help Takeda pivot away from its home base -- where the government recently began implementing more stringent drug-pricing controls -- to more lucrative markets such as the U.S. and Europe.

The prospect of taking on significant debt to fund the deal has sent Takeda's stock price into a tailspin since it expressed interest in Shire, whose market value now exceeds its own by about $15 billion. Takeda's shares closed down 7% Wednesday, eating into the value of the stock portion of its offer and bringing the total decline since late March, when it first said it was courting Shire, to more than 18%.

Credit-ratings company Moody's said Wednesday the deal could invite "a multinotch downgrade" from its current single-A rating.

"You would be nervous, scared even, if you are a shareholder in Takeda," said Fumiyoshi Sakai, a Credit Suisse pharmaceutical analyst in Tokyo. "But if not this, and not now, then what does Takeda do?"

Takeda's pursuit of Shire is emblematic of a trend: Japan's behemoths, seeing little potential at home owing to a shrinking population or unfavorable regulation, are looking for growth overseas.

SoftBank Group Corp. has transformed itself from a Japanese mobile-network operator into a global investment fund. Its deal for U.K. chip designer ARM Holdings PLC in 2016, valued at roughly $32 billion at the time, is the current record holder for Japanese overseas acquisitions. In 2012 it struck a deal to buy control of Sprint Corp. of the U.S. for $21.6 billion.

Other Japanese companies, while keeping the bulk of their business at home, have sought to diversify. Several insurers have made multibillion-dollar acquisitions in the U.S., led by Tokio Marine Holdings Inc.'s $7.5 billion purchase of HCC Insurance Holdings in 2015. Motor maker Nidec Corp. said Tuesday it would pay $1.08 billion for a Whirlpool Corp. unit that makes compressors for refrigerators.

The Takeda-Shire deal would lift the value of this year's outbound mergers and acquisitions activity by Japanese companies to roughly $100 billion, according to Dealogic -- easily on track to top the full-year record of $111 billion, set in 2012.

Japanese pharmaceutical companies have an additional reason to search for acquisitions: Like their Western counterparts, they are looking at drying pipelines, and need a quick way to replenish shrinking portfolios of patent-protected drugs.

The pain is compounded by government policy. The Japanese government -- confronted with a large aging population -- has taken steps to encourage the sale of cheaper, copycat drugs while slashing the price it pays for the newer drugs that generate billions of dollars in sales for companies such as Takeda.

Since last year, Japan has twice slashed the price of a Bristol-Myers Squibb Co. and Ono Pharmaceutical Co. cancer drug, first by 50% and then by nearly 24%. Such cuts have Western drugmakers protesting and Japanese drugmakers focusing more on the U.S. market, which offers greater pricing freedom.

Takeda has made a string of smaller U.S. acquisitions in recent years. Under former President Yasuchika Hasegawa, it bought Cambridge, Mass.-based Millennium Pharmaceuticals, with its portfolio of high-price specialty drugs, for $8.8 billion in 2008.

Believing Takeda needed to become even more global, Mr. Hasegawa brought in a Frenchman, Christophe Weber , as his successor in 2014. A former GlaxoSmithKline PLC executive, Mr. Weber packed his executive team with Americans and Europeans, shed noncore businesses and established greater Boston as one of the company's two global research hubs.

Last year, he purchased U.S. cancer-drug maker Ariad Pharmaceuticals for $5 billion, leading some credit-rating companies to downgrade their outlook for Takeda debt.

Mr. Weber defended his M&A strategy in an interview with The Wall Street Journal last year, saying the rewards for Takeda and its targets would, over time, outweigh the risks.

If the Shire deal is concluded, the U.S. would account for roughly half the combined company's sales. While a Takeda spokeswoman said it intends to keep its headquarters in Japan, analysts say Takeda-Shire's nerve center would inevitably migrate to where its customers and growth prospects lie.

Write to Preetika Rana at preetika.rana@wsj.com and Peter Landers at peter.landers@wsj.com

(END) Dow Jones Newswires

April 26, 2018 02:47 ET (06:47 GMT)

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