Takeda shareholders fear dilution, debt from Shire deal pose ‘high risks,’ demand shareholders vote on it

Takeda building
Takeda made five acquisition offers for Shire before the two companies finally reached a deal. (Sipa USA/Rex Features)

Takeda’s long-sought $62 billion acquisition bid for Shire has launched the Japanese drugmaker into the big leagues, but it hasn’t quite been embraced by investors. The company’s shares have lost more than 20% of their value since late March, when Takeda was preparing its first of what ended up being five bids for Shire.

That loss of market value is being cited by a group of 12 shareholders stepping up to oppose the deal. They’re demanding that Takeda put the acquisition up for a vote at its shareholder meeting on June 28, and that its executives do more to address the “overly high risks” the deal poses to existing shareholders. The group voiced its concerns in a proposal that Takeda disclosed in the notice (PDF) of convocation for the shareholder meeting.

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The opposing shareholders noted that Takeda intends to finance about 55% of the Shire takeover with newly issued shares. That “might significantly dilute the earnings per share, which is a dividend resource, and there is a danger of causing a great disadvantage to existing shareholders including institutional investors,” their proposal said. The shareholders also expressed concerns about the deal in light of Takeda’s “current financial situation.”

Takeda did not immediately respond to a request for comment. But the company acknowledged while announcing the deal a couple of weeks back that it will have to take on debt. That said, its executives guaranteed investors they would maintain a debt-to-EBITDA ratio of no more than 2x and said the company expects to maintain its investment-grade credit rating.

Takeda is planning to put the deal up for a vote at a separate meeting. Its board opposed the proposal from the dissenting shareholders, stating in the notice of convocation that the Shire acquisition was made “after repetitive and careful discussion” by board members.

The Japanese pharma company has pitched the Shire takeover as a way to create a global leader in gastroenterology and neuroscience, while at the same time boosting the company’s presence in vaccines, rare diseases and oncology. Takeda also expects $1.4 billion in cost savings over the next three years, though that won’t come without some pain: The company plans to slash up to 7% of the combined workforce, or about 3,600 jobs. The cuts are expected to hit SG&A, R&D and manufacturing.

RELATED: Hey, Takeda shareholders: Shire's Q1 may ease some buyout worries, analysts say

Takeda will be taking on plenty of challenges, to be sure. During the most recent quarter, Shire chalked up a few disappointments, including dry-eye treatment Xiidra and enzyme-replacement therapy Elaprase.

But Shire’s neuroscience unit performed well during the quarter, and the company’s decision to separate out that division's financials revealed that it is highly profitable. The neuroscience unit's performance helped the company turn in better-than-expected sales and earnings—and it prompted predictions from analysts of a successful merger between Takeda and Shire. “You have both committed buyer and an accepting seller. Short of Takeda’s stock price imploding a deal is likely,” said Bernstein analyst Ronny Gal in an investor video following Shire’s earnings announcement.