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Allergan out but Takeda sticks to guns on Shire

Published on 20/04/18 at 08:49am

Allergan performed an odd about-turn after initially declaring its interest in pursuing a deal for Shire, before reneging on that statement only a few hours later by suggesting it wouldn’t follow through on its interest.

It announced it would not make an offer, before concluding: “Allergan continues its ongoing process of evaluating a full range of potential strategic actions that will create value for shareholders, such as divestitures, combinations and acquisitions.”

The reasons why Allergan performed this hokey cokey, in regards to the deal, are not completely clear but the immediate shareholder backlash seems to have played a part. Shares immediately dropped by 7% before it revealed it wouldn’t pursue the deal – only for their value to remain down 4%.

This leaves Takeda as the only known current interested party to acquire Shire and its determination to make the deal work is evident already from the three offers it has already submitted. This does not rule out another player entering the market, as Allergan proved, it is easy to throw your hat in the ring, even if you snatch it back out almost immediately.

Shire revealed that Takeda had offered $63 billion cash-and-stock conditional offer, which it had rejected alongside two other bids.

The major sticking point seems to be the proportion of the deal made up by Takeda stock, with Shire preferring a larger cash portion of the deal. The previously rejected deal would have seen Shire shareholders own 51% of the proposed merged company.

Clearly there are doubts over the value of such shares, given that Takeda is already stretched precariously thin by the deal and the merged company would be loaded with a large amount of debt.

This is one of the risks of two similarly sized businesses attempting to confirm a deal, as Shire knows from its merger with Baxalta. In a statement, Takeda moved to reassure shareholders that it would be prudent in its pursuit:

“Takeda and its Board reiterate that it will remain disciplined with respect to the terms of any such offer. As previously stated, Takeda intends to maintain its well-established dividend policy and investment grade credit rating.”

With Allergan entering the ring, it briefly looked like a bidding war may emerge that would completely undermine any attempt to remain disciplined if the company wanted to make the deal.

However, no new competitors have emerged and it may now hinge on just how far Takeda is willing to stretch itself on the deal and how willing Shire’s board will be in accepting a large amount of the future company’s share to make up the weight of the deal.

Ben Hargreaves

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