By Greg Roumeliotis, Ben Martin and Ben Hirschler
NEW YORK/LONDON (Reuters) - Rare disease drug maker Shire Plc (L:SHP) said on Thursday it had rejected a $63 billion (44.7 billion pounds) cash-and-stock acquisition offer by Japan's Takeda Pharmaceutical Co Ltd (T:4502), while Allergan Plc (N:AGN) reversed course on pursuing a rival bid.
The high-stakes drama underscores the surge in dealmaking this year in the pharmaceutical sector, as large players look for promising assets to improve their pipelines. An acquisition of Shire by Takeda would be by far the biggest acquisition of a drug company year-to-date.
Botox-maker Allergan confirmed on Thursday it was considering an offer for Shire after Reuters reported on its interest, sending its shares down 7 percent.
Later on Thursday, Allergan Chief Executive Brent Saunders decided to drop his pursuit of London-listed Shire after receiving pushback from some of his shareholders, who were concerned about the company overstretching its resources, according to people familiar with the matter, who asked not be identified discussing confidential talks. Allergan then issued a second announcement stating it did not intend to make an offer for Shire.
Dublin-based Allergan, which has a market capitalisation of $52 billion, had $30 billion in debt as of the end of December, the legacy of a string of acquisitions. This has weighed on Allergan's ability to carry out big acquisitions.
Allergan's exploration of a bid for Shire was part of its wider strategic review, Allergan said in a statement. This review is currently unlikely to lead either to a major acquisition or a breakup of the company, one of the sources said.
Reuters also first reported on Thursday that Takeda had made a cash-and-stock offer of 46.50 pounds ($66.20) a share for Shire. This prompted both companies to confirm the move and announce that Shire had rejected it, although their negotiations are continuing.
Buying Shire would be the largest ever overseas acquisition by a Japanese company and propel Takeda, led by Frenchman Christophe Weber, into the top ranks of global drugmakers.
It would be Weber's boldest move by far, significantly boosting Takeda's position in rare diseases, including a blockbuster hemophilia franchise, gastrointestinal disorders and neuroscience, where Shire is a leader in drugs to treat hyperactivity.
But it would be a big financial stretch since Shire, with a market value of more than 34 billion pounds ($48.3 billion), is worth a lot more than Japan's biggest drugmaker, which has a market capitalisation of 4.1 trillion yen ($31 billion).
An acquisition of Shire would have given Allergan heft in the rare diseases space at a time when Saunders is seeking to cement its status as a purveyor of innovative drugs. Saunders' plans to sell Allergan to Pfizer (NYSE:PFE) for $160 billion were scuppered two years ago after the U.S. Treasury changed the rules on corporate tax inversions.
Saunders "was a huge deal guy and everyone was kind of waiting for the next big deal," said Kevin Kedra, an analyst with Gabelli & Co, which holds shares of both Allergan and Shire.
If there was to be a big share component to a deal it would have to come before a vote of shareholders, he noted. "Shareholders seem to be voting this morning," Kedra said.
Takeda said it would remain disciplined in its approach and intended to maintain its dividend policy and investment-grade credit rating, adding that: "Discussions between the parties regarding a potential offer are ongoing."
MORE CASH WANTED
Shire confirmed it had received three conditional proposals from Takeda, but said they significantly undervalued the company's growth prospects and drugs in development.
Takeda's latest 46.50 pounds offer was made on April 12 and comprised 17.75 pounds in cash, which would be paid in U.S. dollars, and 28.75 pounds worth of new Takeda shares. Shire said that valued it at approximately 44 billion pounds ($62.6 billion), based on total issued and to be issued share capital.
The two earlier cash-and-share offers were worth 44 and 45.50 pounds per share, respectively.
Under UK takeover rules, Takeda has until April 25 to make a firm offer or walk away, after it said last month it was considering a bid.
Based on Takeda's market capitalisation, Shire shareholders would end up owning approximately 51 percent of the enlarged group, Shire noted.
Bernstein analyst Wimal Kapadia said Shire was likely to be pushing for a larger cash component in current talks but Takeda was already stretched, suggesting the chances of a deal being consummated were still "reasonably risky."
Shire has been under pressure in the past 12 months, with its shares down by a third before Takeda's interest was made public, due to greater competition from generic drugs and debts from its $32 billion acquisition of Baxalta in 2016.
Shire said in January it would run its attention deficit hyperactivity disorder (ADHD) business, which consists mainly of its blockbuster drug Vyvanse, separately and possibly seek a separate listing.
Earlier this week it struck a deal to sell its cancer drugs for $2.4 billion to unlisted French group Servier.