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Takeda borrows $31bn for Shire buyout but vows to deleverage

Japanese drugmaker plans to cut debt by half in 3-5 years to keep credit rating

Takeda's buyout of Shire, if it goes through, will leave Shire shareholders with about half the combined company.   © Reuters

TOKYO -- Takeda Pharmaceutical on Tuesday said it will raise nearly half of the 46 billion pounds ($62.3 billion) for the Shire buyout from a bridge loan but assured shareholders that it would deleverage rapidly to keep its investment-grade credit rating.

Takeda said on Tuesday that its shareholders had agreed to buy Ireland-based drugmaker Shire in a cash and stock deal, moving closer to sealing the biggest-ever overseas acquisition by a Japanese company. If the deal goes through, it will put Takeda among the world's top 10 drugmakers by revenue.

The agreement was reached after a month-long pursuit by Takeda, during which Shire rejected multiple offers, saying they undervalued the company. The buyout will help the 237-year-old Japanese company to expand its overseas footprint and drug portfolio.

To finance the acquisition, Takeda said it will obtain a $30.85 billion bridge loan from J.P. Morgan Chase Bank, Sumitomo Mitsui Banking, and MUFG Bank, among others. In a conference call, Takeda CEO Christophe Weber said that the loan will raise its debt level to four to five times earnings before interest, taxes, depreciation and amortization. The company aims to reduce that figure to two times or below in three to five years, he said.

"What is important is to remain investment grade," Weber said, addressing concerns over potential credit rating downgrades after the debt-funded acquisition. Takeda is rated A1 by Moody's and A- by S&P. "That's why we will also deleverage rapidly."

Part of the deleveraging effort would hinge on cost savings, which Takeda said would be worth at least $1.4 billion annually. To achieve that target, the company may cut 6% to 7% of the combined workforce of around 52,000 people, Weber said.

The deal values Shire at 46 billion pounds, or 49.01 pounds per share, based on Takeda's stock price of 4,923 yen on April 23 -- the day before Shire said it was willing to recommend the offer to its shareholders. The offer represents a 56.2% premium over Shire's 30-day, volume-weighted average price through March 23.

Shire's London-listed shares rose about 4% in early trading Tuesday.

Shire shareholders will receive $30.33 in cash and either 0.839 new Takeda share or 1.678 Takeda American depositary shares for each share of Shire. Upon completion, Shire shareholders will own about half the combined company.

The acquisition "will accelerate our transformation for a stronger Takeda," Weber said in a media release. In a conference call following the announcement, Weber said the transaction will "give the two companies a leading position in two of largest pharmaceutical markets globally: the U.S. and Japan."

Shire chair Susan Kilsby said, "We firmly believe that this combination recognizes the strong growth potential of our leading products and innovative pipeline."

The deal is subject to approval by 75% of Shire's shareholders at an upcoming shareholders' meeting, as well as approval from Takeda shareholders. Weber expressed confidence that the acquisition would go ahead, saying, "The board of Shire is supporting this acquisition. This means that they consider it is positive for their shareholders, which is very important."

Up to three Shire directors will join the Takeda board after the buyout is completed.

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