Shire/Takeda: How deal risks create M&A opportunities

DOIhttp://doi.org/10.1002/jcaf.22387
Date01 April 2019
Published date01 April 2019
AuthorFlorence Tournier
M&A TRENDS
Shire/Takeda: How deal risks create M&A opportunities
A case study into 2018's most exciting European trade
Florence Tournier
International University of Monaco,
Churchill Capital, Monaco
Correspondence
International University of Monaco,
Churchill Capital, Monaco.
Email: florence@churchillcap.com
Abstract
M&A activity in 2018 has been concentrated––in terms of news flow, deal length,
spread width, size and volume––around two main mega-deals, the competing bids
of Fox and Comcast for Sky and Takeda's acquisition of Shire, which both ended
successfully. The US-China trade war and European-wide political concerns,
including the uncertainty and lack of visibility around Brexit and the Italian budget,
may have discouraged large transactions. Overall deal risk has also increased with
enhanced regulatory scrutiny over national interest in sensitive sectors. In this arti-
cle, we will focus on one of them: Takeda's acquisition of Shire, whose interest lies
in the number and nature of issues involved, as well as the attractiveness of the
trade until the very end.
KEYWORDS
Europe, M&A, pharma
1|ABBVIE'S FAILED ATTEMPT
In 2014, AbbVie failed to buy Shire following unilateral tax
rules changes by the US Department of Treasury, altering
the economic rationale of the deal, and leaving a bitter taste
in the world of merger arbitrageurs. Called tax inversion,
this principle allowed US-based multinationals to deploy
offshore cash outside the US and use it to fund
transactions. At the time, AbbVie got out of the deal by
withdrawing its board recommendation, incurring a USD
1.635bn termination fee payable to Shire.
Since then, Shire had remained a widely speculated takeover
target, as companies such as Pfizer, Allergan or Novartis were
rumored to be interested in acquiring the biotech group. Against
expectations, it is a Japanese company, which emerged as a cred-
ible buyer and decided to use massive leverage to acquire the
biotech group.
2|A MOTIVATED JAPANESE
ACQUIRER
Takeda's motivation to pursue Shire was driven by its
desire to (a) strengthen core therapeutic areas of oncology,
gastroenterology and neuroscience, (b) accelerate its position
in specialized medicines through the addition of Shire's rare
disease franchise, and (c) reinforce its late-stage pipeline of
drugs.
It made an approach on March 28, 2018 and had until
April 25 to formalize an offer under UK takeover rules. This
deadline was pushed to May 8 with the consent of the parties
in order to conclude ongoing discussions. Takeda amended
its proposal several times, and after a fifth improvement, the
board of Shire agreed to the combination. For this to happen,
Takeda stretched its net debt-to-EBITDA ratio from 1.9x to
5.0x, on the basis that synergies and potential proceeds from
Received: 28 March 2019 Accepted: 28 March 2019
DOI: 10.1002/jcaf.22387
J Corp Acct Fin. 2019;30:111113. wileyonlinelibrary.com/journal/jcaf © 2019 Wiley Periodicals, Inc. 111

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