A further drop Takeda's share price could scupper a mega-deal between the Japanese pharmaceutical giant and Irish drugmaker Shire, according to City analysts.
Shire's board announced today that it was prepared to back a £46bn takeover bid by Takeda, having rebuffed several earlier proposals and only after the Japanese drugmaker sweetened its offer for the firm to £49 a share.
But approval is far from certain, according to Mick Cooper, a healthcare analyst with Trinity Delta. The roughly 32pc slump in Takeda’s share price since the start of the year suggests Japanese investors are wary of the deal, not least because of the huge amount of debt Takeda would have to take on to fund the acquisition.
Adding Takeda and Shire's debt together, along with the extra capital that would be needed from Japanese banks to fund the cash element of the purchase, the company's borrowings will reach more than £40bn - on a par with oil giant BP, which has a much higher growth rate and bigger margins.
Shares in Tokyo-listed Takeda ended the day down 7pc as wary investors digested the deal, which would represent the largest ever foreign takeover by a Japanese firm.
“It’s not only about Shire’s shareholders approving the deal, but Takeda’s as well,” said Mr Cooper. “The share price suggests there is doubt and the deal will bring with it major challenges. Takeda still needs to do careful due diligence on Shire because integration will be far from easy.”
Takeda, a typically conservative Japanese company, will be taking on a bigger firm with an aggressive US approach and an unconventional and fragmented portfolio of drugs for extremely rare diseases, according to Mr Cooper.
Takeda’s boss, Frenchman Christophe Weber, is its first non-Japanese chief executive in its 237-year history, and his appointment in 2015 was met with disapproval by some investors.
Another City analyst said Takeda’s reasons for acquiring Shire were “beyond confusion”.
“I don't understand why Takeda wants this,” he said. “Takeda has a healthy cash position and a good debt rating, but the new enlarged company would have a lot of debt and this debt would be downgraded several notches.
“Takeda's chief executive is relatively new and he clearly wants to put his stamp on things with a big acquisition... This came completely out of the blue, is not a natural fit and would be a big strategic change. It would be a big mess.”
This came completely out of the blue, is not a natural fit and would be a big strategic change. It would be a big mess
A continued slump in Takeda’s share price could put off Shire's investors because roughly half of the £49 per share offer is in shares in the Japanese drugmaker.
“Aside from an all-cash deal, Shire would generate more value for shareholders by selling its parts, rather than the sum of its parts, which will be complicated, take a lot of effort, and cost a lot of money,” said another analyst.
“But the fact that no one else has come out of the woodwork to make an offer after all this time probably means there are no more bidders”
Artjom Hatsaturjants, a research analyst at Accendo Markets, said: “For Shire, the deal depends on how Takeda’s stock performs. The chances of it going through are better than they were on Tuesday, but if the share price continues to tumble, there is a good chance the whole thing will be called off.”
Shire's share price was unchanged following the announcement of the higher offer, suggesting that its own investors doubt the deal will go ahead.
The bid follows a string of offers rejected by Shire over the past month and comes as Takeda looks to expand abroad in the face of an expected drop in drugs prices at home.
The tie-up could create a global pharmaceutical powerhouse with close to £22bn of annual sales, roughly equivalent in size to Britain’s AstraZeneca.
London-listed, Dublin-based Shire said it was "willing to recommend the revised proposal to Shire shareholders subject to satisfactory resolution of the other terms of the possible offer".
It set a new May 8 deadline for the conclusion of negotiations.
Fellow Dublin-based pharmaceutical company Allergan briefly entered the fray last week by saying it was interested in making an offer for Shire, but performed a U-turn hours later after a shareholder backlash.