Allergan's Interest Raises Stakes in Pursuit of Drugmaker Shire

Allergan Plc’s potential offer for Shire Plc may start a bidding war with Takeda Pharmaceutical Co., whose overtures for the drugmaker have so far failed to secure a deal.

Buying Shire would quickly remake either suitor. The drugmaker, run from Massachusetts, has a large rare-disease division, a coveted line of business at a time when many pharmaceutical companies are searching for ways to replenish depleted pipelines of new medications.

“A lot of the bigger companies are asking the same question: Do you build it or do you buy it,” said Tim Chiang, an analyst at BTIG.

Allergan said Thursday that it was “in the early stages of considering a possible offer for Shire” as part of a broader review of its strategic options. Later, the company declined to comment on a CNBC report citing unnamed sources that Allergan wouldn’t bid for Shire.

 For both Allergan and Takeda, paying for a takeover could be a complicated proposition. Allergan has been focused on paring its roughly $30 billion in debt. Takeda is much smaller than Shire, and its spurned offer included a large chunk of its own stock. Analysts say that if the Japanese drugmaker is to prevail it must offer much more cash.

Earlier, Takeda said it offered 46.50 pounds ($66.16) a share for Shire on April 12, with 62 percent of the proposed price in new Takeda stock. Shire said its board and advisers felt the proposed terms “significantly undervalue the company and Shire’s growth prospects and pipeline,” though it’s willing to keep negotiating.

Shire shares traded in London were up 5.9 percent at 39.75 pounds.

Allergan Chief Executive Officer Brent Saunders indicated last month that the drugmaker was exploring its options and was considering a wide range of possibilities after buying back a big chunk of its shares in 2017.

“We’re undertaking a full, fresh look at every option we have available to us,” Saunders said at the Barclays Global Healthcare Conference in March. “We are going to look at every idea. We’re going to consider every option. And we’re going to see if there are opportunities to create value.”

Saunders is one of the most prolific dealmakers in the drug industry, having either or attempted orchestrated some of the biggest prospective mergers in recent years. He first became a CEO in 2010 for Bausch & Lomb Inc. before selling the eyecare company to Valeant Pharmaceuticals International Inc. for $8.7 billion three years later.hire had been battling a slumping share price before the start of the recent deal drama. Its stock had dropped 34 percent in the year prior to March 27, the day before Takeda’s interest in the company first emerged. Takeda’s most recent bid is a 51 percent premium to Shire’s closing price on March 27.

Investors were worried that the hemophilia business Shire won in its $36 billion takeover of Baxalta in 2016 would lose ground sooner than anticipated to a competing therapy from Roche Holding AG. Shire had recently been exploring options, including possibly spinning off its rare-disease and neuroscience businesses.

“Shire has fallen out of favor with investors, it sells at an extremely low valuation which I think is what has triggered the interest of Takeda,” said John Schroer, sector head of U.S. health care at Allianz Global Investors. “You’ve seen consistent revisions downward on the hemophilia legacy Baxalta business, that has weighed on EPS, that has weighed on earnings growth.”

Shire has been maneuvering to raise more money even as its talks with Takeda dragged on. Last week, it agreed to sell its oncology business to France’s Servier SAS for $2.4 billion -- a move that some analysts said could make it more attractive to Takeda, which itself had recently spent $4.7 billion on U.S. cancer-drug company Ariad Pharmaceuticals.

Biggest Deal

Takeda has been ramping up its overseas takeover ambitions under Chief Executive Officer Christophe Weber, as the company faces new competition for some key drugs and a shrinking Japanese population. Shire would bring new assets including treatments for gastrointestinal diseases and nervous-system ailments. Under U.K. takeover rules, Takeda had until next week to make an offer or walk away after it initially expressed interest in Shire last month.

A Shire takeover would be by far Takeda’s largest-ever deal. Its most expensive previous purchase was a $13.7 billion takeover of Nycomed A/S in 2011. The mass of a Shire deal has given some investors pause, and the presence of other bidders could push Takeda out into the cold.

“If there are other bidders obviously it makes it a lot harder for Takeda,” said Allianz’s Schroer. “How will they compete?”

April 19, 2018

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