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Shire - Japan's Takeda considering an offer

Nicholas Hyett | 28 March 2018 | A A A
Shire - Japan's Takeda considering an offer

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On 28 March Japanese pharmaceutical group Takeda announced it's considering making a bid for Shire - although has yet to approach the board with an offer.

Shire shares jumped 16.6% on the announcement.

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Our View

We've previously said we felt Shire hadn't received the credit for the progress it's made, making its undemanding 8.3 times prices to earnings ratio a potentially attractive entry point.

Following the acquisition of Baxalta back in 2016, Shire has strong positions in several attractive markets. Sales of recently developed drugs are rising rapidly and major patent expiries aren't scheduled until the 2020s. Meanwhile the labs are looking productive, which should secure revenue streams for the future.

However, the group's valuation doesn't reflect those strengths, and there a couple of reasons for that. First is a balance sheet that's still weighed down with $19bn of debt following the Baxalta deal - equivalent to about 3 years EBITDA - that will soak up cash for years to come. Second is the looming threat of competition in the important haematology business which accounts for $3.8bn of annual sales.

Takeda clearly feels that a fairly unambitious 8.3 times PE rating undervalues Shire, and the jump in share price suggests the offer is being taken seriously. However, Shire is still a big meal to swallow. We'll just have to wait and see if Takeda can make the numbers stack up for an offer.

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Takeda approach

In a short statement Takeda said a deal would strengthen its core oncology, Gastrointestinal and neuroscience therapy areas while also highlighting the attractiveness of Shire's rare diseases unit.

The group also highlighted Shire's pipeline of drugs in development as a potential attraction.

Takeda must make an offer, or announce that it does not intend to make an offer, by 25 April 2018.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.