With big debt on tap, analysts see Takeda-Shire deal as 'more likely than not'

Takeda US facility
Takeda's objective with a Shire deal is "2025 positioning," Bernstein analyst Wimal Kapadia wrote to clients Thursday. (Takeda)

After Takeda revealed last week that it was eyeing a Shire buy, industry watchers expressed skepticism that the company could pull it off. Now, though, some analysts like the Japanese drugmaker’s chances.

In a Thursday meeting, Takeda told analysts it was “willing to push its debt higher” in order to seal the deal, Bernstein’s Wimal Kapadia wrote to clients. And in light of that fact, he now sees a potential transaction as “more likely than not.”

“We think the deal is likely because there is willing buyer, willing sellers and room to meet both sides’ expectations,” he wrote.

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Shire shares have been struggling hard; new hemophilia competition from Roche has prevented them from bouncing back after a less-than-stellar Baxalta buy that left the company “too levered to do anything itself” as far as M&A goes.

But while “Shire stand-alone struggles with negative earnings revisions and lack of catalysts in the near-term,” Takeda can afford to wait for the tide to turn. “The objective for Takeda is 2025 positioning,” Kapadia pointed out.

Of course, just because Shire shareholders are open to a sale doesn’t mean there’s overlap between the price they want and what Takeda’s willing to lay down, he noted. According to a Bernstein survey, investors are hoping for £42/$175 per share to kick off negotiations and £45/$190 to ink an agreement—as well as less than 50% in Takeda shares.

RELATED: Takeda shares plummeted on Shire deal buzz. Is a buyout now out of reach?

Other analysts had previously voiced doubts that Takeda could afford a Shire buy after its interest announcement sank shares but sent Shire's soaring.

But the way Kapadia sees things, Takeda can probably get it done thanks to a willingness to go to 5x leverage and the opportunity to issue shares locally, which would reduce the shares issued to Shire investors.

“We believe the local market will be willing to absorb more Takeda stock given the positive local headlines and limited share movement down since the deal has been announced,” Kapadia wrote.

Meanwhile, the pharma intends to drum up some extra cash with a sale of its Brazil-based pharma unit, Multilab Indústria e Comércio de Produtos Farmacêuticos, Reuters reported. Takeda plans to offload the business to Novamed Fabricação de Produtos Farmacêuticos in June at an undisclosed price.

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