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Takeda will be hoping that it’s a case of fifth time’s the charm, after revising higher its takeover offer for Shire. The new offer of £49/share (up 4% from Friday’s £47/share, up 11% from initial bid) comprises £21.75 cash, with the remaining £27.26 in newly issued Takeda shares. This is also the first time that Shire’s board suggested a willingness to recommend any of the recent proposals. With the Takeover Panel also giving the parties an additional fortnight to come to a final agreement, there is more time for a deal to be agreed or revised (up, or down). It also gives time for the whole thing to be abandoned.
The new £49/share offer represents a whopping 59.6% premium to Shire’s share price on March 27th, the day before confirmation that Takeda was considering an approach (up from 43.3% initially). Markets are unlikely, however, to trade at the new revised price of £49/share because the considerable portion (55.6%) of the latest offer remains in new Takeda stock. In fact it’s actually risen from 55.3% of the overall bid.
The market response to the new proposal is thus understandably muted (SHP trading -1%), especially with Takeda shares having fallen another 7% overnight in Tokyo, to their lowest since mid-August 2016, further reducing the value of the shares being offered (-20% in JPY terms, -21.4% in GBP since March 27th). Hence why the overall bid and cash has had to be revised higher (£21.75/share represents a 36% improvement on the Takeda’s first proposal), to sweeten the deal and try to compensate for some of the share price decline. That said, Takeda stock price fluctuations are equally understandable, pricing in the risk that the firm is taking in acquiring Shire, and the financial burden it will add to fund it.
Given the risk of prolonged formal takeover negotiations and regulatory hurdles, there is potential for a competitor to emerge (Allergan?), now that Takeda has potentially shown its final hand. Having missed out on £52.48/share offer (£24.40 cash/46.5%) from AbbVie 4 years ago, due to US political interference (objection to tax inversion), investors may be eager to sink their claws into the £21.75 cash carrot being dangled before them, especially if what’s offered is not going to go much higher On the flipside, the value of Takeda’s own share price represents huge uncertainty.#
Shareholders in the Irish specialty pharmaceuticals firm may be slightly more reassured by another higher bid with a wee bit more cash. But not by the direction of Takeda’s share price, which they are almost certain to be watching closer than to their own stock.
Artjom Hatsaturjants, Research Analyst, 25 April 2018
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