FTSE 100 drug maker Shire PLC (LON:SHP) said it is willing to recommend the Takeda takeover deal to its shareholders after the Japanese conglomerate upped its offer.
The new offer from Takeda values Shire at around £46bn, or £49 per share, up from its previous bid of £43bn.
READ: Shires shares spike 4% after Takeda revises £43bn bid
The offer would comprise the equivalent of about £27.2 in Takeda shares and £21.7 in cash for each Shire share.
RBC Capital Markets said the bid is "consistent with our thinking, as it would let the Japanese company remain at or near 5.0x net leverage, while allowing existing Takeda shareholders to maintain at least 50% ownership of the new company".
Shire said in a statement that it would extend a regulatory deadline for the takeover negotiations to May 8 to allow Takeda to carry out more due diligence, saying that it could be extended further if needed.
Takeda's mounting debt makes deal hard to justify, says analyst
Michael Hewson, chief market analyst at CMC Markets, said: "Given how low interest rates are in Japan right now raising the necessary funds for this Shire acquisition shouldn’t be too difficult, however just because you can raise the money doesn’t mean you should.
"According to the most recent accounts Takeda has net debt of 884bn yen, which comes in at about $81bn, a significant increase on where it was in 2016, when it was less than half that amount.
"When you add in Shire’s debt which comes in at US$20bn and also add in the extra capital which needs to be raised from Japanese banks to fund the purchase and Takeda’s debt will explode well above the US$100bn level."
He added Shire shareholders may feel like they are getting a raw deal with 50% ownership in Takeda since the Japenese firm's share price has nosedived in the past few months and could be worth even less by the time the deal completes.
"With the best will in the world, irrespective of how good Shire’s product pipeline is, it is hard to make the case that there is the amount of value in this deal that the additional debt would justify, at a time when pharmaceutical margins are likely to come under further pressure."