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Shire deal looks like classic pairs trade for investors

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Takeda shareholders will be voting on Wednesday on an offer to buy Ireland’s Shire in an acquisition that is being hailed as the largest ever international purchase undertaken by a Japanese firm. Many shareholders are unconvinced however, and Takeda shares have been in a slump which has taken them down by 35% since the beginning of this year.

Hedge funds are betting on a Shire deal going through

Savvy traders are betting that the Shire deal gets the nod, however: big hedge funds like Baupost are indulging in a little pairs trading, buying Shire shares while at the same time shorting Takeda stock to magnify their returns. Baupost has been echoed by legendary US hedge fund manager John Paulson, who has done much the same.

Takeda is swimming against the current with the Shire deal, with the descendants of the founders, employees and Japanese shareholders all railing against the deal. Bear in mind that Shire is, in fact, bigger than Takeda.

A former director at Takeda Pharmaceutical, Kazuhisa Takeda, has told Japanese news service Nikkei that potentially as many as 20% of shareholders will vote against. This will not be enough, however, as the company only needs to secure a 66% vote to approve the acquisition.

Speaking as a press conference in Tokyo, Takeda said:

“The financial risk is too big while the expected merit is too limited. M&A is quite necessary for Takeda’s future, but this deal is too risky.”

Takeda admitted the chances of blocking the Shire deal were slim.

Takeda deal looks like a class pair trade

Takeda Pharmaceuticals is planning to issue new shares as part of its $62 billion acquisition of Shire. The proposed deal has already been approved by anti=trust authorities in China, Japan, the US and the European Union.

Takeda is still digesting the acquisition of Ariad in the United States, for which it coughed up $5 billion. Takeda is carrying plenty of debt on its balance sheet as a result.

Shire investors will have been seeing a steady run from their Shire stock over the last six months, thanks in large part to the interest from Takeda, and the successive offers that have been received. Investors had the opportunity back in March to buy Shire for £29 and it has reached £46 recently.

At the time of writing, Shire shares were trading at £46 while Takeda shares were down at JPY 4230, having slumped there from a 52 week high of JPY 6693. The obvious trade here is a long Shire, short Takeda one, and many traders will have capitalised on this trend through the autumn months.

 

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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