japans-takeda-pays-88-billion-for-millennium

Japan's Takeda pays $8.8 billion for Millennium

Takeda's purchase of US oncology firm Millennium represents Japan's largest outbound pharmaceuticals acquisition, but shareholders and analysts are questioning the offer price.
JapanÆs Takeda Pharmaceutical will buy Nasdaq-traded Millennium Pharmaceuticals for $8.8 billion. Takeda is offering shareholders of Millennium $25 a share to buy 100% of the outstanding equity, a more than 50% premium to the price at which Millennium traded on Wednesday, April 9.

Millennium is expected to become TakedaÆs centre for oncology worldwide and will continue to operate in Massachusetts, as a standalone business unit.

Millennium is a biopharmaceutical company with sales of approximately $528 million in 2007. One of the key drugs in MillenniumÆs portfolio is Velcade, an injectable drug, which is a market leader in treatment for patients with multiple myeloma (cancer of the plasma cells). This is being co-developed by Millennium and Johnson & Johnson Pharmaceutical Research & Development. Millennium also has a pipeline of drugs under development for oncology, inflammation and inflammatory bowel disease.

On April 10 Millennium announced that first-quarter sales of Velcade were $84 million, a growth of 13% over the fourth quarter of 2007 and 42% over the corresponding quarter of 2007. Velcade has outperformed consensus analyst expectations.

"Millennium greatly strengthens Takeda's global oncology portfolio, led by the flagship product Velcade, and further enhances its pipeline with clinically differentiated, high-quality product candidates," says Yasuchika Hasegawa, president of Takeda in a written statement. "Our strong desire is to retain Millennium employees, who have created an entrepreneurial and innovative culture."

The transaction is subject to Takeda achieving a majority shareholding in Millennium after the tender. MillenniumÆs shares are 97% owned by institutions. Wellington Management, Clearbridge Advisers, TCW Group, Capital Guardian Trust and Barclays Global Investors are its top five shareholders.

Takeda is a more than 200-year-old company, headquartered in Osaka Japan, with a focus on pharmaceuticals. It had Ñ294.2 billion ($2.89 billion) in cash and Ñ1,476.9 billion in short-term investments on its balance sheet as of December 2007 so will finance the deal from its existing reserves. It expects the acquisition to be accretive to earnings from March 2010.

On April 11 MoodyÆs placed Takeda's Aa1 rating on review for a possible downgrade, saying it believes the acquisition is in line with Takeda's strategy to strengthen its oncology business, and that it may enhance Takeda's business franchise and presence in the field. But Moody's went on to say it needs to evaluate the impact of the merger on TakedaÆs competitiveness, business strategy, returns and liquidity situation.

UBS and Edwards Angell Palmer & Dodge are advising Takeda. Goldman Sachs and WilmerHale are advising Millennium. Neither UBS nor Goldman Sachs agreed to comment.

Millennium gained 49% after the deal was announced on Thursday to close at $24.31, the highest level the share price has been in the last five years.

Some analysts are speculating that a higher bid could emerge for Millennium from either Johnson & Johnson, with whom Millennium is working on Velcade, or from other European pharmaceutical majors, who also enjoy the same advantage as Takeda of a strong currency vis-a-vis the dollar.

The deal highlights an advantage that Japanese acquirers have in the current environment where debt financing is difficult to obtain and in many instances proving expensive. Few other bidders will be in a situation like Takeda where their balance sheets are liquid enough to finance a $9 billion deal.

But also, few other bidders may be willing to pay the premium Takeda has paid. For Takeda, the move puts to work the liquidity on its balance sheet in a manner which will hopefully earn better returns than its current investments.

But it is a high-risk move as MillenniumÆs value lies as much in its untested portfolio under development as well as the products it has commercialised such as Velcade. Some analysts on Friday reduced their price target for Takeda after factoring in details of the acquisition and investors in Japan seemed nervous as the share ended down 2% on Friday.
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