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Shire: Takeda deadline looms, but will other bidders emerge for in-play £43bn drugs group?

Next week we'll see the colour of Takeda's money. Will rival bidders emerge from the woodwork?

The Japanese giant has sweetened its deal - but not by much. However, the cash element has been boosted significantly

So, what next for Shire PLC (LON:SHP)? At one point on Thursday, it had two suitors.

One, Botox maker Allergan PLC (NYSE:AGN), quickly ruled itself out of the running, while Takeda (TYO:4502) after being sent away to sharpen its pencil has come back with a £43bn indicative bid.

READ: Shire rejects takeover bid from Takeda, said to be in talks with Allergan

Crucially, it has increased the cash element to £21 a share from £17.75 and upped the total offer to £47 from £44.

Even before the latest deal, Jefferies analyst David Steinberg reckoned the price tabled was a "solid" one. The stumbling block had been the cash element. It remains to be seen whether the rejigged offer gets Shire's blessing.   

Runway running out

However, commentators reckon Takeda’s acquisitive chief executive Christophe Weber is running out of financial runway.

Takeda for its part has dampened expectations of a significant hike to the deal terms, saying it remained “disciplined” and intended to “maintain its well-established dividend policy and investment-grade credit rating”.

Third bidder in the wings?

Reports have suggested a third would-be Shire acquirer is lurking in the wings with Novartis (VTX:NOVN), AbbVie Inc (NYSE:ABBV) and Pfizer Inc (NYSE:PFE) among the names touted.

In fact, most established large pharma companies will have what’s called a “takeout model” for Shire, analysts said.

The current round of interest will simply crystallise the will to move forward or force companies to permanently shelve any lingering interest.

AbbVie walked away

AbbVie walked away from a planned £39bn swoop for Shire in 2014 after changes to US tax rules that would have allowed it to take advantage of lower corporate tax rates outside the US.

The logic today is not one of engineering the best tax deal, given the cuts to US levies by President Donald Trump, but garnering cost savings and finding synergies between drug pipelines.

There is value-add for Takeda across the oncology, gastro-intestinal and neurology portfolios, analysts reckon.

Most of the interested parties will have been attracted by Shire’s low valuation, which before the latest round of interest, was barely above eight-times core earnings.

But value could be destroyed if Takeda or another bidder goes on the offensive.

Hostile deals don't work 

“Hostile takeovers have just not worked in recent years,” said Jefferies’ Steinberg, citing the collapse of the Mylan-Perrigo, Valeant-Allergan and Teva-Mylan deal.

He also believes the company should start a beauty parade, given the interest.

“If they haven’t – and now given Takeda’s clear interest – it would seem at this point the right move would be to start one in order to maximise shareholder value, in our view.”

Next Wednesday (April 25) is the deadline Takeda has been handed to lodge a formal bid (the three other approaches were indicative).

Deutsche analyst Parkes believes the Japanese are in earnest. “Feedback from Takeda's recent sell-side analyst call suggests a formal approach is increasingly likely and our initial analysis suggests a deal could be significantly accretive if Takeda is willing to stretch its balance sheet in the short-term,” he explained.

“Shire's still undemanding valuation and our view that the strategic rationale of the combination could make Takeda a determined suitor.”

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