TOKYO -- Takeda Pharmaceutical's sweetened $62 billion proposal to swallow up Shire, the Irish drugmaker with a larger market value, represents the multinational's biggest gamble.
Japan's largest pharmaceutical company sees the purchase as not just a way of shoring up its international business, but, more importantly, ensuring its survival. So it persists in pursuing Shire despite all of the resulting criticism.
"Takeda is serious," a financial source familiar with the behind-the-scenes developments said Friday, the day the Osaka-based company announced it increased its bid for Shire a third time.
The Japanese company is now proposing to acquire Shire for 47 pounds ($66) a share, comprised of nearly 3 trillion yen ($27.8 billion) in cash, with the remainder to be covered by roughly 4 trillion yen in new Takeda shares. The value of the new shares would top Takeda's market capitalization of 3.8 trillion yen as of Friday.
Shire issued a statement on Friday confirming Takeda's fourth proposal, adding that its board is considering the bid and will issue another announcement in due course.
Leading the 230-year-old drugmaker's gamble is President Christophe Weber, the Frenchman recruited from GlaxoSmithKline in 2014. Weber was brought in by former President Yasuchika Hasegawa with the hope of shaking up the traditional Japanese company, including rebuilding overseas companies it has acquired.
Although Hasegawa and former Chairman Kunio Takeda, the scion of the Takeda empire, have retired from the front lines, and three of the five current board members are non-Japanese, the new leadership has hardly been the catalyst it was expected to be.
Takeda's net profit stood at a meager 115 billion yen for the year ended March 2017. The black ink is no more than half of what Astellas Pharma generates, even though the domestic rival pulls in less in sales.
The company used to be propped up by wonder drugs that boasted annual sales of 400 billion yen, such as diabetes medication Actos. Now Takeda only has three leading drugs that each makes around 100 billion yen per year. The pharmaceutical group has failed to develop successor big-name brand prescriptions.
One shortcut to getting Takeda's hands on new blockbuster drugs is buying out rivals. But in the four years since Weber stepped into power, the company has only one megadeal to its name--the roughly 630 billion yen takeover of U.S. cancer drug maker Ariad Pharmaceuticals last year.
While there are criticisms about Shire's hefty price tag, one source at a Japanese brokerage calls it a "bargain." Shire earns a net profit of around $4.3 billion, or four times Takeda's bottom line. What's more, the enterprise value to EBITDA, a measure used to evaluate the number of years it takes a company to recoup the amount of an acquisition, stands at a multiple of about 12. Ratios for many other pharmaceutical acquisitions rise to 13 or even 14.
Although the conservative company had sought to inject new blood into its game, Takeda under Weber has continued to prioritize maintaining stable ratings and finances. But that sort of sound management has turned out to be costly. The gap in sales with Swiss rival Roche, the global leader, has ballooned to 4 trillion yen in 2017 from 2 trillion yen in 2008.
Weber has his eyes firmly on the U.S., the world's largest drug market. With Shire generating 60% of its sales in America, adding the Irish company would propel Takeda into the world's top 10 drugmakers by sales.
While Shire enjoys a catalog of cash-cow drugs, the patents will begin to expire starting in 2021. Takeda will have to develop new profit generators to sustain its growth momentum.
To finance the megadeal, Japan's three major banks -- Sumitomo Mitsui Banking Corp, MUFG Bank and Mizuho Bank -- are looking to provide around 1 trillion yen each in bridge loans. The banks would realize one of the biggest combined financing deals in Japan if the takeover goes through. But they may face competition from U.S. and European financial institutions eager to secure commissions.
Takeda's latest proposal introduces the real risk of diluting the value of its shares currently in circulation. Investors have not been welcoming of the potential acquisition, reasoning that such a deal would hurt the Japanese company's financial footing. Takeda's shares lost 5% at one point Friday to touch 4,855 yen, a year-to-date low. It was also learned Friday that U.S. institutional investor Capital Research & Management sold off a portion of its Takeda holdings.