Exclusive - Shire, Takeda reach breakthrough in deal talks: sources

By Ben Martin and Carl O'Donnell

LONDON/NEW YORK (Reuters) - London-listed drugmaker Shire Plc and Japan's Takeda Pharmaceutical Co Ltd plan to announce a preliminary merger deal as early as Wednesday, after the latter sweetened its $62 billion acquisition offer, three people familiar with the matter said.

The tentative agreement would represent a victory for Takeda following a pursuit that started on March 28, when the company said it was considering a bid for Shire. Since then, it has made five offers, the latest earlier on Tuesday.

Shire is expected to agree to an extension of a Wednesday regulatory deadline that would allow Takeda to carry out more due diligence and firm up its bid, the sources said on Tuesday on condition of anonymity to discuss the confidential negotiations.

Takeda and Shire did not immediately respond to requests for comment.

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 haemophilia franchise, gastrointestinal disorders and neuroscience - areas in which Shire is a leader in hyperactivity drugs.

But the transaction would be a huge financial stretch, since Shire is worth considerably more than the Japanese group. Ambitious cost cutting will be required to make the deal pay. Dealmaking has surged in the drug industry this year as large players look for promising assets to improve their pipelines. A Takeda-Shire transaction would be by far the biggest. Shire has long been seen as a likely takeover target and was nearly bought by U.S. drugmaker AbbVie Inc in 2014, until U.S. tax rule changes caused the deal to fall apart. Shire also has a track record of acquisitions, but its biggest ever deal - the $32 billion purchase of Baxalta in 2016 - was widely criticized by shareholders.

Dublin-based Shire, a member of Britain's benchmark FTSE 100 stock index, disclosed it had received a fifth takeover proposal from Takeda on Tuesday, but provided no details.

This came after Takeda's fourth bid for Shire on Friday, of 47 pounds per share, including 26 pounds in Takeda stock and 21 pounds in cash. That valued Shire, which is led by Chief Executive Flemming Ornskov, at 44.3 billion pounds ($61.8 billion).

Under British takeover rules, Takeda had until 5 p.m. (1600 GMT) on Wednesday to make a firm offer or walk away from Shire.

However, that deadline can be moved back at the request of the FTSE 100 drugmaker and Takeda had said on Friday it hoped negotiations with Shire would lead to an extension.

The deal developments came just as Shire held its annual shareholder meeting in Dublin on Tuesday.

"As of now we can only say that discussions between the advisers of Shire and Takeda are ongoing," Susan Kilsby, the drugmaker's chairwoman, told investors at the meeting which lasted less than 15 minutes.

Shire focuses on treatments for rare diseases and attention deficit hyperactivity disorder and a takeover would catapult Takeda into the top ranks of global drugmakers.

ALLERGAN BOWED OUT

Allergan Plc , the U.S. maker of Botox, had been considering a rival bid for Shire but ruled itself out of making an offer last week.

Shire also announced last week it was selling its oncology business to unlisted French drugmaker Servier for $2.4 billion.

Takeda's shares closed down 1.5 percent on Tuesday, giving it a market value of 3.86 trillion yen ($35.5 billion), according to Thomson Reuters data. That is much smaller than the value of the fourth bid for Shire that Takeda disclosed last week.

Takeda investors have been skeptical about the merits of a Shire deal, given the size of the potential purchase and the likely need for a large share issue, which could be highly dilutive.

Weber was promoted to CEO in 2015, becoming the drugmaker's first non-Japanese boss.

The Japanese firm said last month that buying Shire would bolster its position in the United States, in gastrointestinal diseases and neuroscience.

Shire traces its roots back to 1986, when it began as a seller of calcium supplements to treat osteoporosis, operating from an office above a shop in Hampshire. Since then it has grown rapidly through acquisitions to generate revenues of about $15.2 billion last year.

(Reporting by Ben Martin in London and Carl O'Donnell in New York Additional reporting by Padraic Halpin in Dublin and Ben Hirschler in New York; Editing by Jason Neely, Adrian Croft and Richard Chang)