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Stock Analyst Update

Takeda Considers Swallowing Shire

The rumored deal is somewhat of a surprise, but it could make strategic sense.

Mentioned:

Japanese pharma firm Takeda said it is officially considering making an offer for diversified rare-disease-focused  Shire (SHPG) in what would probably be a merger of equals (both companies have recently traded around the $40 billion market cap level). We are maintaining our fair value estimates for both until we see evidence that discussions are advancing; an official offer is expected in April.

While we see Takeda's shares as fairly valued, we’ve seen Shire’s shares as significantly undervalued in recent months, so the deal could be partly motivated by Shire’s current valuation, as well as the fact that both firms have a significant presence in Cambridge, Massachusetts. We think the market’s focus on competition to Shire’s established hemophilia portfolio could give Takeda (or another suitor) the opportunity to acquire a diversified rare-disease business and rapidly growing immunology business at a good price.

Takeda has a mixed record with acquisitions, however, which is part of reason for its low returns on invested capital and very low margins, and we do not award it an economic moat. While Shire’s business faces threats in the form of novel hemophilia drugs and patent cliffs on older specialty pharma products, we think its rare-disease portfolio warrants a narrow moat rating.

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Karen Andersen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.