Takeda Pharmaceutical shareholders approved on Wednesday its $59 billion takeover of London-listed Shire, creating a global powerhouse with a stronger drugs pipeline but one that is saddled with massive debt.
Takeda will be joining the ranks of the world's top 10 drugmakers and gaining expertise in rare diseases through the deal, the biggest overseas acquisition by a Japanese company.
It will also become one of the most indebted. In addition to issuing new shares, the company has secured $30.9 billion in bank loans.
The company's high debt levels were a top concern for shareholders who gathered at an extraordinary meeting in Osaka, western Japan, although almost 90 per cent of them voted to approve the deal as expected.
"I want to keep my Takeda shares into the future, but now I am worried about further declines in the share price," said Satoshi Ito, a 75-year-old shareholder. He abstained from voting.
Takeda shares have fallen around 25 per cent since the drugmaker revealed its interest in the acquisition in March. They closed up 1 per cent at 4,240 yen on Wednesday.
Shire shares gained 2.6 per cent to 46.69 pounds on relief Takeda's board had won its nine-month battle to persuade shareholders of the merits of the tie-up.
The acquisition is expected to close on Jan. 8. It remains subject to Shire shareholder approval at meetings due later on Wednesday and sanctioning at a court hearing expected to be held on Jan. 3.
Debts, Descendants and Divestitures
A small group of Takeda investors, including descendants of the company's founder, had actively opposed the deal.
"We are definitely against this because the financial risks are too great and the expected benefits are quite limited," said Kazuhisa Takeda, a former director of the drugmaker and a member of the founding family, ahead of the meeting.
"I think M&A is quite necessary for Takeda's future but Shire is not the answer."
Chief Executive Christophe Weber has promised to turn the deal profitable by slashing costs. It predicts annual savings of at least $1.4 billion three years after completion, and expects to boost underlying earnings significantly from the first full year after closing.
Takeda also has a plan to sell up to $10 billion worth of non-core assets to pay back debt. Andy Plump, Takeda's global head of R&D, told Reuters that accelerated deleveraging was needed to keep its credit rating at a safe level.
"We have a plan for divestiture that gets us to a place in three to five years that our credit agencies are OK with. Our credit rating is likely to tick down a notch, but still above junk bond status, which is critical for us," he said in an interview.
Analysts have said it may be difficult to integrate the two companies. Toshiba's acquisition of Westinghouse over a decade ago and Japan Post Holdings' $4.9 billion bet on Toll Holdings are widely seen as examples of many Japanese companies having paid high valuations in cross-border deals only to face massive write-downs later.
But they also said Takeda has little choice but to seek growth abroad, with industry pressure to gain access to cutting-edge treatments amid declining revenue from older drugs that must compete with cheaper generics.
Even with the acquisition of Shire, some said Takeda will need to bolster its lineup of experimental therapies to compete in the longer term.
Shire's haemophilia business, for example, is already starting to face strong pressure from a competing drug being marketed by Roche as well as new gene therapies now in development.
"It's crucial whether the drugmaker can reinvest profits from the deal into seeds for developing future drugs," said Kazuaki Hashiguchi, a senior drugs analyst at Daiwa Securities.
"The benefits of the deal will last for a limited time, as no treatments can avoid patent expiration."