"Shire-Takeda deal is reasonable value, says Shore Capital
Shire (SHP) has made an agreement with pharma company peer Takeda on a £46 billion takeover offer, which Shore Capital says looks like reasonable value.
Analyst Tara Raveendran retained her buy recommendation on Shire after a deal was reached that sees each Shire shareholder receive $30.33 in cash plus shares in Takeda, worth a total of £49 a share.
The deal represents a 56.2% premium to Shires 30-day trading day volume-weighted average and values the group at £46 billion, said Raveendran. Post deal close, Shire shareholders will own c.50% of the enlarged group.
The Shire directors will recommend the deal unanimously and the acquisition is expected to become effective in the first half of 2019 subject to shareholder approval.
While we acknowledge the consideration as including the part receipt of Takedas equity, given the absence of predictable catalysts over the next 12 months to close the fundamental valuation gap, we see the current proposal offer as offering reasonable value to shareholders over this timeframe, said Raveendran.
Shire shares jumped 4.6%, or 178p, to £40.34, a discount to the offer."
I don't think Shire should need a lot of convincing.
The cash offer component is c. 50% of the offer ie about 2400p per share.
If the offer does not go ahead the Shire share price could well drop below the price prior to the bid speculation ie less than 3000p
ie Accepting the offer gives something like 100% profit relative to the offer failure case
Takedas chief executive, Christophe Weber, is heading to London next week to explain the deal to shareholders. It needs support from 75% of Shire shareholders and two-thirds of Takeda investors to succeed.
-I think they need a lot of convincing
""""Over at Olivetree, analysts addressed the concerns within the market that large Takeda shareholders are rebelling against managements 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 doesnt 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 years was c73%) sees this close to being cleared with just the support of this group."""
Games -- Could see a recovery after this more +ve view
Takeda share price has risen and has reversed the small loss following the initial announcement of the offer.
I've bought some more Shire shares today given the potential 20% gain when the deal is implemented; accept that there is likely to be an initial sell-off of Takeda shares by Shire shareholders but happy to wait 'til normal trading brings share price stability and potential further gains back to more historically typical Takeda share price levels.
(Meanwhile getting a 4% dividend).
The problem is there will be lots of selling pressure on the Takeda share price as unhappy institutions offload or reduce their stake in Takeda due to the massive increase in debt to do this deal , and then later once all the Shire holders dump their Takeda shares . Clearly this will be a headwind holding back the Shire share price .
Takeda Pharmaceuticals and Shire reported they have reached agreement on the terms of a recommended offer pursuant to which Takeda will acquire Shire. Under the terms of the acquisition, each Shire shareholder will be entitled to receive $30.33 for each Shire share and either 0.839 new Takeda shares or 1.678 Takeda ADSs. The acquisition terms imply an equivalent value of £48.17 per Shire share. Takeda said it believes the acquisition will: - Create a global, values-based, R&D driven biopharmaceutical leader incorporated and headquartered in Japan, with an attractive geographic footprint and the scale to drive future development; - Strengthen Takeda's core therapeutic areas, bringing together complementary positions in gastroenterology (GI) and neuroscience, and provide leading positions in rare diseases and plasma-derived therapies; - Create a highly complementary, robust, modality-diverse pipeline and a strengthened R&D engine focused on breakthrough innovation; and - Deliver compelling financial benefits for the shareholders of both Takeda and Shire, including significant accretion to underlying earnings per Takeda share, return on invested capital above Takeda's cost of capital, and expect it to generate substantial cost synergies of at least $1.4bn Takeda reported it has remained disciplined with respect to the terms of the acquisition and intends to maintain its well-established dividend policy. Story provided by StockMarketWire.com
Takeda share price has dropped about 7% (& stabilised) since the offer was announced (which presumably means a potential higher cash component of the offer to maintain existing share ownership at 51% level)
Its currently at the bottom end of its 5 year range (4500 to 6500).
Time is running out given the extension to 8 May but there is the option of a further extension.
Personally I'm looking for a better return than selling at current Shire prices and therefore hanging on for a Takeda offer acceptance or longer term Shire price recovery.
Not worried about holding Japanese shares for a while to realise a share price recovery
he seems to think so? -- Or maybe he just wants out at any price perhaps?
"""The founder of Shire has come out in support of a proposed takeover by a Japanese rival. Harry Stratford, 70, who launched the pharmaceuticals company from an office above a village off-licence near Basingstoke in the mid-1980s, said that a £46 billion proposal from Takeda represented a fair price. The Times""
SHPG reported solid Q1 results.
SHGP faces near term LOE for Lialda and potential competition for Xiidra if AGN loses a patent challenge for Restasis.
At 11% of revenue SHPG's R&D costs are paltry.
At "normalized R&D" expenses SHPG's buyout offer from TKPYY could be about 17x run-rate EBITDA.
I rate SHPG a hold.
Shire (SHPG) delivered Q1 2018 revenue of $3.77 billion and eps of $0.32. The company beat on revenue by $50 million and also beat on eps. Total revenue was up 5% Y/Y. Of note is that revenue generated from recently launched products (from 2013 to 2017) was $464 million, up 77% Y/Y. I had the following takeaways on the quarter:
Shire's Rare Disease Franchise Growing At Double Digits
Shire is known for its rare disease franchise and it grew by 10% Y/Y. The results were impressive given the $2.7 billion in total sales from the franchise. Revenue growth was broad-based as each of the company's rare disease segments showed traction.
Immunology (31% of total product sales) was up 8% on the strength of immunoglobulin therapies and bio therapeutics products. Both of these sub-groups showed double-digit growth during the quarter. Immunoglobulin growth was primarily driven by subcutaneous products. Hematology (26% of total revenue) was up 9% on the strength of adynovate (treats hemophilia in children).
Revenue from Neuroscience actually fell 2% Y/Y, a sharp departure from Q4 when its revenue rose by double-digits. Sales of Lialda (ulcerative colitis) fell 65% due to generic competition that materialized in the second half of 2017. Teva (TEVA) was also approved for a generic version last month, which could further hurt Lialda's sales. Neuroscience represents 25% of total revenue and could be a headwind for the rest of 2018.
Of note, Shire's ophthalmics grew revenue by over 60%. The lion's share came form Xiidra, which treats dry eye. Mylan (MYL) has challenged patents for Allergan's (AGN) Restasis dry-eye drug. If it wins an inter partes review ("IPR") then generic Restasis could be here in the second half of 2018. This could hurt sales of Xiidra, another catalyst for Shire.
Were Results Good Enough To Warrant A Takeda Takeover?
Takeda (OTCPK:TKPYY) is reportedly in talks to acquire Shire for $64 billion; including the company's net debt of $18 billion its total enterprise value ("EV") would be about $82 billion. Takeda's growth prospects within Japan may be limited, so it may have to grow through acquisition. At an EV of $82 billion Shire would be valued at about 13x run-rate EBITDA. The question remains, "Is Shire the right target at this price?"
Shire grew revenue in the high single-digits while EBITDA was up over 40% Y/Y. Gross margins improved to 70% from 63% in the year earlier period. Shire also reduced SG&A to 21% of revenue from 25% in the year earlier period. I doubt these gains can continue in perpetuity. The company's R&D costs were paltry at 11% of total revenue. I previously highlighted that for selected pharmaceutical companies R&D expense was around 21% of total revenue.
Assuming "normalized" R&D expenses at 21% of total revenue, Shire's quarterly R&D expenses would increase by about $386 million. The company's run-rate EBITDA would decline to$4.7 billion, putting Takeda's buyout multiple at 17x run-rate EBITDA. I believe this valuation is robust for a company with mid-single digit revenue growth and potential near term loss of exclusivity ("LOE"). I also understand that Vyvance (treats ADHD) could be subject to LOE by 2023:
His primary point was that Shire Neuroscience is currently estimated to have an $11 billion value, but that value will deteriorate with time primarily because of the future value of Vyvanse. Vyvanse is currently a $2 billion/year drug and has a patent expiration in 2023.
In Q1 Vyvance generated of $628 million, up 12% Y/Y. It represented over 15% of Shire's total product sales, and over 65% of Neuroscience sales. This is another obstacle that hurt Shire's deal value.
From Bloomberg TV this morning it seems like there is doubt Takeda can really afford purchase of Shire. Their shareholders showing doubts and Takeda share price falling sharply. It is feared that if deal goes ahead Shire shareholders will dump Takeda shares causing further falls. It also of course means that deal is becoming worth less to Shire investors as Takeda shares fall in value.
I guess a lot of PI's of Shire, like me, do not fancy holding Japanese shares.
""Takeda confirmed the statement, adding that it reserves the right to alter the mix of the proposal and reminded that it could still refrain from making any firm offer.""
Surely if they altered the mix, Shire would not recommend it, and if they are reserving the right not to make a firm offer, isn't this because they look to have made the verbal offer (sounding) of £49 ish without proper financial backing?
All a bit messy really -- well I guess they have quite a while to lose the deal if as suspected Shire keep holding out for a higher cash offer from a bigger company.
See RNS dated today (25/4) & released at 00.10 hours. It also goes into detail about the bid components (cash & Takeda shares split), other conditions to be fulfilled etc. Also includes condition to allow Shire to do due diligence on Takeda (I guess to check it is a financially viable bid).
Keith, Takeda today is listed on the Japanese stock market and in Yen.
If the deal goes ahead, Takeda have said that they will do another listing of Takeda shares in New York as ADRs (American Depository Receipts).
You could then hold them via a UK broker and for dividends you will be subject to withholding tax at 30% or 15% if you fill out a W8-BEN form via your broker to address the US/UK dual tax agreement.
Alternatively once the deal is announced and the price listed in the UK gets close to the deal price announced (as it will take ages for it to be de-listed off the UK market) you can dump the lot, prior to all the legal matters being agreed, and buy something else in the UK.
If you have your shares in an ISA or SIPP then you won't be subject to Capital Gains Tax. If not, any gain over the annual free gains tax allowance will be subject to either 18% or 28% gains tax rates depending on your income tax band.
Until a formal offer is made I don't think anyone will step into the fray. The big drug companies will all have decided the value of Shire. Once a bid is made they may see an opportunity if its below their target price. I assume Takeda and many others would like Shire because its cheap and offers tax advantages. Why would you want Takeda shares when they have a weaker pipeline than Shire. Its not a good swap just a dilution of the future growth. I will need to take my money and run.
It seems likely that Shire will play out the game with Takeda by calling for an extension and keeping the door open for another rival bidder whilst they continue to extract every last cent out of a desperately (and possibly rather silly over indebted) 5th bidding suitor.
Anyone know how long an extension is legally allowed?
1 week maybe?
Mind you -- another bidder would surely have arrived on the scene by now, no?
Games -- Come on let's get it over with so we can all move on with some cash.
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