TOKYO -- Takeda Pharmaceutical's planned $62 billion takeover of Irish peer Shire has wiped off roughly 1 trillion yen ($9.09 billion) from the Japanese drugmaker's market capitalization since late March.
When Takeda first announced in March 28 that it was considering an approach to Shire, Takeda's share price stood at 5,532 yen, putting the market cap at 4.4 trillion yen. Now the price has slid more than 20% to 4,291 yen on Monday, equating to a market value just over 3.4 trillion yen.
The reasons investors are shying away are twofold. First, Takeda is failing to turn its leading domestic market share by sales into decent earnings. For the current fiscal year ending next March, consolidated net profit is projected to shrink 26% to 139 billion yen, marking the first decline in four years.
Furthermore, for the past few years, Takeda was able to prop up its bottom line only by selling off assets like reagent unit Wako Pure Chemical Industries and real estate. Those selloffs amounted to roughly 100 billion yen annually. But now Takeda is left with only a few remaining assets to put on the market, according to an official at a Japanese brokerage.
The second point of concern is the cost of buying out Shire, a company that enjoys a larger market value than Takeda. The Japanese multinational is financing the deal, which Shire's board accepted in early May, through a cash-and-share arrangement that entails more than 3 trillion yen in borrowing. The likelihood that Takeda's already substantial interest-bearing debt will balloon further has turned off many investors.
Takeda is also issuing around 4 trillion yen in new shares, which shareholders fear will dilute voting rights.
"Activity is increasing where [investors] sell Takeda shares due to uncertainties, and buying promising alternative pharmaceutical stocks," said Tsutomu Yamada at Kabu.com Securities.
One of those alternatives is Astellas Pharma, which has seen its stock gain 7% since late March. The domestic rival not only outstrips Takeda in profit despite lower sales, it is effectively debt-free. On June 5, Astellas' market cap topped Takeda's for the first time in two years.
Chugai Pharmaceutical, the Tokyo-based developer of the blockbuster hemophilia drug Hemlibra, boosted its market value 13% over the same stretch, also putting it over Takeda at one point earlier this month.
Takeda President Christophe Weber justifies the Shire takeover by saying the target controls a strong foothold in the lucrative U.S. market, which will complement Takeda's presence in Japan. Weber predicts earnings before interest, taxes, depreciation and amortization will leap to 1 trillion yen. He also says Shire will significantly upgrade the combined entity's research and development capabilities.
But Weber still needs to convince Takeda shareholders, who have shown some resistance to the buyout. The company will officially decide on the new share issue at a special shareholders' meeting to be hold at the end of the year at the soonest. The regular shareholders' meeting on June 28, however, will preview the back-and-forth between investors and management.