Takeda sells off assets in China or to improve its financial health as it acquires Shire

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After announcing the $62 billion acquisition of Shire, Takeda has ranked among the top 10 global pharmaceutical companies, but this transaction will also bring a huge debt burden. Now, the Japanese drugmaker is looking to ease the pressure on its debt by selling its stake in Chinese biopharmaceutical company Temple.

Founded in 1993, Tianpu is a human urine protein biopharmaceutical enterprise focusing on the field of critical and severe drugs and integrating research and development, production and marketing of biomedicine. The company sells two drugs in China: one for acute and chronic pancreatitis and acute circulatory failure, and the other for mild to moderate acute thrombotic cerebral infarction.

This time, Takeda will sell its 51.34 per cent stake in Tianpu to Shanghai Pharmaceuticals for $0.28 billion. Temple is a joint venture between Takeda and Shanghai Pharmaceutical. Shanghai Pharmaceutical and other two companies will buy Takeda's shares in cash. It is said that the parties will complete the relevant formalities within a few months for approval. Upon completion of the transaction, Shanghai Pharma's stake in Tianpu will increase from 40.80 per cent to 67.14 per cent, achieving absolute control.

Takeda recently reached an agreement with Shire to buy the latter for about 7 trillion yen. The acquisition will swell Takeda's interest-bearing liabilities to around 3 trillion yen and loans from financial institutions to as much as 3 trillion yen.

On the one hand, Takeda's patents on a number of major drugs are about to expire, and high dividends are still maintained in the context of declining profitability. In fiscal year 2014 (as of March 2015), Takeda still did not reduce its dividend even though the consolidated final profit and loss was a loss of 145.8 billion yen. Takeda CEO Christophe Weber made it clear that he will continue to maintain an annual dividend of 180 yen per share after reaching an acquisition agreement with Shire. However, together with past acquisitions, Takeda's interest-bearing debt balance was about 985.7 billion yen as of the end of March 2018, swelling to 1.7 times in five years. The transfer of Temple's shares is believed to be an attempt to improve the financial health deteriorated by the Shire acquisition and to maintain the dividend.

Last week, Weber proposed a debt plan in hopes of cutting costs without reducing innovation, which includes bringing in one or more large long-term investors (such as government funds). The company is in talks with potential investors, but details have not been disclosed, and the plan also involves divesting R & D projects that do not have innovative capabilities. Weber said Takeda may move the projects to separate biotechnologies to retain their stakes, or simply abandon them altogether. Takeda expects to save $1.4 billion in expenses within three years of closing the deal. According to the company's latest employee statistics, Takeda will lay off 6%-7% of its staff after the Shire merger. Takeda is expected to further accelerate the sale of non-core businesses in the future.