Post-Shire buy, Takeda investors want executives to return pay if performance lags

Takeda wrapped up its $60 billion Shire takeover early this year with massive support from shareholders, despite previous resistance. But the weight on the deal's mastermind, Takeda CEO Christophe Weber, is far from over.

At the company's general meeting last week, the majority of Takeda investors backed a proposal that would allow Takeda to claw back executive pay should the Shire deal not live up to expectations.

Though 52.2% of attending shareholders voted in favor of the new clause, it fell short of the two-thirds majority needed to move through, according to a securities filing posted on Tuesday. Still, it’s a clear sign that investors intend to keep members of management responsible for their major decisions.

The proposal didn’t specifically name Shire, but it referred to “excessive investment in the past” in general. If an impairment loss arises later that renders the compensation amount under the long-term incentive plan incorrect, or if the indicators for performance-based pay are erroneous, the pay package should be recalculated and the difference be returned, it says.

In the previous fiscal year that ended in March, Weber racked up 1.76 billion yen ($16.3 million) in total pay, with about half from long-term incentives, according to Takeda’s just-filed annual report. Those figures are on par with Celgene CEO Mark Alles’ $16.2 million for the 2018 calendar year.

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Unlike its Western peers, Takeda doesn’t lay out the details of how it calculates compensation for executives. A separate proposal that asks Takeda to disclose the logic and math behind each individual executive’s pay was also defeated, even though it racked up almost half of all votes in favor.

Influential proxy advisers Institutional Shareholder Services (ISS) and Glass Lewis previously backed both proposals and likely influenced foreign investors, who own 50.7% of the Japanese pharma, Nikkei Asian Review reported. The financial newspaper also said that Takeda will consider increasing transparency behind executive pay and adding a clawback provision in its internal rules rather than making them formal revisions to the articles of incorporation.

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Weber’s efforts to take in Shire ended with his victory in January after 88% of votes supported the deal a month before. But the French-born CEO had to fight hard. Descendants of the Takeda founding family, including former Takeda chairman Kunio Takeda, openly objected to the buyout, citing high risks as the company took on a $31 billion loan to fund the deal. Concerns also pointed to competition to Shire’s hemophilia franchise, which made up about 20% of the Irish company’s revenue.

ISS and Glass Lewis previously both recommended that investors vote to approve the gigantic deal. “The deal diversifies the company in terms of products and geographies, and provides strong cash flow generation that, combined with divestments, allows for relatively rapid deleveraging, despite maintaining top of the range leverage in the mid-term,” ISS said in a report to clients, as quoted by Reuters in November.

To help pay down debt, the company recently sold Shire’s eye drug Xiidra to Novartis for $3.4 billion upfront and up to $1.9 billion in potential milestone payments. As of March, Takeda’s net debt was 4.7 times its adjusted earnings. The plan is to sell some noncore assets worth $10 billion and bring down the ratio to 2x within three to five years.