Stock Focus: Shire plc

We purchased Shire plc at circa £37 per share when rumours broke that Japanese drugmaker Takeda Pharmaceutical Co was interested in taking over the company.

On 25th April, Takeda and Shire directors finally agreed on a deal that they were both happy to recommend to Shareholders. The purchase price is in flux, as there are two exchange rates involved and some of the consideration offered to Shire shareholders is in Takeda’s shares (0.839 Takeda shares per Shire share).

Takeda’s shares are quoted in Yen, and vary in price as the relative attractiveness of the deal is sounded out by Takeda shareholders. The Yen/Sterling exchange rate will also affect how valuable Takeda shares are as consideration to UK investors. Finally, the cash part of the consideration offered by Takeda is a fixed dollar amount ($30.33 per share), and so the USD/GBP exchange rate will also impact the value of the takeover offer.

Shire plc’s shares are quoted in Sterling. Currently the share price is £42.18 (as at 22/05/2018), and the takeover value is circa £48.80 (as at 22/05/2018). We think there is a fair chance that the takeover value could go higher still as Takeda’s shares rise. FX rates could also boost the consideration in Sterling terms.

The deal is yet to be approved by Shire and Takeda shareholders. The vote requires 2/3rds of Takeda shareholders to approve the takeover, and 75% of Shire shareholders to vote in favour. But Shire shareholders will be wary of rejecting a deal, given that fellow drugmaker AstraZeneca plc’s share price (£54.53 as at 22/05/2018) is still below the £55 per share offer from Pfizer that was rejected four years ago in May 2014. Takeda shareholders not in favour of the deal are likely to have sold already.

If shareholders approve the deal, then we see further upside as the gap between the market price and the takeover consideration narrows.