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Analysts see positives as Shire agrees to Takeda's takeover
Analysts saw the positives as Shire agreed to be taken over by Takeda Pharmaceutical, as the Japanese company's statement "alleviated some concerns" about the deal.
The acquisition, expected to close in the first half of 2019, has been approved by both boards, and will be subject to votes of Shire and Takeda shareholders and EU, US, Chinese, Japanese and Brazilian regulatory bodies.
As a result of the combination, Takeda said it expects to generate annual pre-tax cost synergies of $1.4bn by the end of the third fiscal year, noting that the acquisition of Shire would be "significantly accretive" to earnings from the first full fiscal year following completion.
"We believe today's release did alleviate some of the concerns surrounding the transaction, most notably Takeda's reassurance that it could de-lever to under 2.0x before asset sales and/or equity rounds," RBC Capital Markets said.
Takeda management highlighted that its dividend would remain intact, which may have been a concern for some investors, RBC felt, but analysts anticipated the deal spread will to remain wider than normal given the complexity of the transaction requiring approval in various geographies, the ability to realize synergies, especially research and development and the deal's long-dated closing date.
Broker Shore Capital, meanwhile, agreed that given the absence of predictable catalysts over the next 12 months to close the fundamental valuation gap, "we see the current proposed offer as offering reasonable value to shareholders over this time frame".
Over at Olivetree, analysts addressed the concerns within the market that large Takeda shareholders are rebelling against management's acquisition ambitions and voting with their feet, which some people have taken as a threat to any vote to approve the deal. But OIivetree said they saw "no evidence" of a wide-ranging shareholder rebellion.
"The data doesn't support this...Outside of one holder, there has been very little activity at all amongst the large holders. In fact, this group has actually been a small net buyer, there are very few sellers indeed."
While someone is selling the stock, an institutional group representing nearly 50% of Takeda has remained loyal and will be the investing community that Takeda "will most likely rely on to carry a shareholder vote", says Olivetree. "Even if we model a 66% voting hurdle, modelling a turnout of 75% (last year's was c73%) sees this close to being cleared with just the support of this group."
In fact, Olivetree says the bigger risk introduced by this performance is the erosion of value to Shire holders: "if one vote is potentially threatened, it could be Shire shareholders deciding the headline offer isn't sufficient".
With the deal needing the backing of 75% of Shires' voting shareholders, Berenberg got a sense from investors that a valuation of £49 is "reasonable; however there is some hesitation about the large equity component of the deal as many shareholders cannot or do not want to hold Takeda shares".
Bererberg suggested if Takeda needed to sell assets, a potential disposal of Shire's haematology or immunology units could attract good valuations from buyers.