Healthy outlook: Shire CEO Flemming Ornskov says the sale of the oncology business highlights the value embedded in Shire. Picture: REUTERS
Healthy outlook: Shire CEO Flemming Ornskov says the sale of the oncology business highlights the value embedded in Shire. Picture: REUTERS

London — Shire, the London-listed rare diseases specialist that is a potential takeover target for Japan’s Takeda Pharmaceutical, is selling its oncology business to unlisted French drug maker Servier for $2.4bn.

The deal suggests there is value locked up within Shire’s portfolio — despite a dismal share price performance in the past two years — as its management braces for a possible $50bn bid battle with Japan’s biggest drugmaker.

Shire said it would consider returning proceeds from the sale to shareholders through a buy-back and that further selective disposals of nonstrategic assets were possible.

The divestment of the cancer business may be a deterrent for Takeda, since oncology was one of the areas it had highlighted as driving the case for a Shire deal, along with gastrointestinal medicine and neuroscience.

Still, given the small contribution of the cancer business to Shire’s overall profits, Deutsche Bank analysts said this was unlikely to be a deal breaker.

A Takeda spokesman declined to comment.

Shire was at pains to point out that it started exploring the sale of oncology in December and began the disposal process in January, during which it identified multiple possible US, European and Japanese buyers.

Takeda’s interest in Shire was made public only at the end of March.

Under UK takeover rules, Takeda has until April 25 to announce whether or not it will bid for Shire, which has a market value of about $47bn.

Buying Shire would be transformational for Takeda but would be a huge financial stretch, since the company is worth about $10bn more than the Japanese group. Shire also had debt of about $19bn as of the end of 2017.

The drugs industry has seen a surge in deal-making in 2018 as large players look for promising assets to improve their pipelines, but a Takeda-Shire transaction would be by far the biggest yet.

Two sources with direct knowledge of the matter said last week Takeda had sounded out its major creditors for loans to fund a potential Shire bid.

Biggest deal

Shire CEO Flemming Ornskov said the sale of the oncology business to Servier demonstrated the value embedded in Shire as shares in the company rose 0.5% early on Monday.

Jefferies analysts said the sale "should boost Shire’s negotiating position on asking price in the offer period with Takeda".

Shire has long been seen as a probable takeover target and was nearly bought by US drugmaker AbbVie in 2014, until changes to US tax legislation caused it to walk away.

Shire itself also has a track record of acquisitions, but its biggest deal — the $32bn purchase of Baxalta in 2016 — was criticised by shareholders.

Its oncology business had sales of $262m in 2017, putting the divestment on a respectable revenue multiple of 9.2 times.

For privately held Servier, acquiring Shire’s oncology operation allows it to establish a direct commercial presence in the US and boosts its presence in cancer.