What's going on?
On Wednesday, Takeda Pharmaceutical’s shareholders signed off on the company’s $59 billion takeover of Irish biotech firm Shire.
What does this mean?
Takeda’s keen to grow beyond its Japanese heartland – and has aimed to do so through a series of acquisitions, with Shire the latest and greatest. But it wasn’t smooth sailing: back in April, Shire rebuffed Takeda’s initial approach – and at one stage an American rival seemed poised to poach Shire instead.
Takeda had to get approval from its shareholders for the purchase, thanks to the sheer amount of heavy lifting involved in getting the deal done. As well as creating new shares in itself – which will go some way towards paying for Shire – Takeda’s also borrowed $31 billion from banks. Some shareholders had resisted the financial strain the deal might put on the company – but in the end, almost 90% backed it. That’s the sort of support Mrs May can only dream of…
Why should I care?
For markets: A spoonful of sugar helps the medicine go down.
Both debt investors (i.e. the banks loaning money, or owners of any bonds) and equity investors (i.e. shareholders) closely scrutinize how much debt a company has relative to its annual profit. Too high a ratio might trigger “covenants” – undertakings the company made when previously borrowing money. That could lead to creditors demanding immediate repayment in full – and it suddenly becoming impossible (or prohibitively expensive) to borrow any more.
The bigger picture: They might be giants.
Takeda’s acquisition means it now has $30 billion in annual sales: the eighth-largest among global drug makers, according to The Wall Street Journal. And, like its fellow giants, Takeda’s likely to follow a well-trodden path in selling off the less essential parts of its business. It’s aiming to raise $10 billion over the next few years from such sales, which it’ll probably use to pay off some of that pesky debt – but the company may also be tempted to spend on further acquisitions to help keep the competition at bay.