Shares in FTSE 100 firm Shire (SHP) enjoyed a 4% rally yesterday afternoon (19 Dec) on speculation it was a takeover target. However, not everyone is convinced.
According to media reports, several big pharma firms are rumoured to be considering a bid for Shire. Investors should note this is not the first time the company has been a target as AbbVie made a £32bn approach three years ago which was abandoned after a US tax rule change.
Shire specialises in treating rare diseases, which targets a very small amount of patients. According to the European Union, this niche space targets less than five in 10,000 of the general population.
NICHE FOCUS COULD DETER BUYERS
UBS analyst Jack Scannell says there is ‘no natural buyer’ for the company due to its specialist focus as it could make it difficult to extract operational synergies.
One of the benefits of acquiring Ireland-based Shire would be its low corporate tax rate, but Scannell argues this is likely to increase in most scenarios if it was acquired.
Shares in Shire last month were trading at their lowest since March 2016 amid concerns over its hemophilia franchise thanks to competition from Roche.
HEMOPHILIA FRANCHISE AT RISK
Liberum believes Shire is at risk of suffering further erosion than expected. The broker says Roche’s Hemlibra injection could be stronger than the firm’s Factor VIII treatment based on positive interim results.
One of the bulls is Jefferies analyst David Steinberg who sees value in Shire, flagging its dominant franchises and strong cash flow generation.
He believes significant US tax reform could drive more M&A activity. This could leave Shire in the cross hairs for a potential takeover - although he concedes the group of buyers is ‘very limited’.
