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Shire bid could be bitter pill for Takeda, warns Lindsell

Star fund manager Michael Lindsell is worried about major holding Takeda Pharmaceutical's potential bid for Shire.

 
Shire bid could be bitter pill for Takeda, warns Lindsell
 

Star fund manager Michael Lindsell has warned that Takeda Pharmaceutical’s (4502.T) potential bid for UK rival Shire (SHP) would compromise Japan’s largest drugmaker.

Citywire AAA-rated Lindsell holds Takeda in his £216 million Lindsell Train Japanese Equity fund. The drugmaker represented 4.8% of the portfolio in February, but with the shares having drifted on the Shire news, has now fallen out of the fund's top 10 holdings.

Shares in Takeda were down 14% in March, with Lindsell citing concerns about how Takeda would fund a takeover of Shire, which is a larger company.

‘As Shire is capitalised at more than Takeda, to do a deal will probably require share issuance and additional debt,’ he said. ‘Takeda already has debt at 50% of its equity and Shire 40%.’

He was also sceptical of how well Shire’s business, which has been built on the back of series of acquisitions, would fit with Takeda, which focuses on the gastrointestinal, neuroscience, and oncology.

Only a third of Shire’s sales fall into these areas and Lindsell said ‘either Takeda will have to expand its areas of specialisation or sell off this incompatible expertise’.

Lindsell is unconvinced by the value that Shire can add to Takeda and said the UK pharma company had a ‘chequered reputation’.

‘[Shire] has been built through acquisition with little heritage of innovation at its core,’ he said.

‘Indeed, one driving motivation for the transaction could well be price – Shire’s shares have performed poorly since the debt-funded acquisition of Baxalta in 2016. We are concerned that, in pursuing the acquisition, Takeda will compromise its core strategy – the focus on a narrow range of therapeutic disciplines, bolt-on deals, and prudent leverage.’

Lindsell said he would push for answers but with ‘the wholesale change in the board structure over the last three years the company does have more robust corporate governance than many other companies’ and said he assumed his questions were already being asked.

The fund beat its benchmark Topix index by 2% in March, thanks to strong performances from IT company Obic Business Consultants (4733.T), haircare brand Milbon (4919.T), and cosmetics business Shiseido (4911.T).

Shares in the Japan Exchange Group (8697.T), Asia’s leading stock market exchange group, also strengthened and Lindsell (pictured) predicted sales, profits and dividends would all grow this year.

‘The company generates prodigious cashflows which help to fuel rising dividends but should also support further share price repurchases in the future,’ he said.

The fund has returned 125.8% over the past five years, beating the 83.6% generated by the Topix. Over one and three years it has more than doubled the return of the Topix, delivering 50.4% over three years and 31.1% over one year, against 18.5% and 15.9% from the index, respectively.

2 comments so far. Why not have your say?

Novgorod

Apr 10, 2018 at 17:44

It seems the Japanese simply can't get enough of British businesses!

There's been ARM, the FT, Pilkington, Ribena/Lucozade etc ...

report this

andy

Apr 14, 2018 at 13:20

Does fit in to the current governments mindset of flog everything off to anyone having slashed the price. Most people have a Christmas sale - UK PLC has a BREXIT sale.

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