Tag / regulatory

by Frank Maduri

Follow Up: Big Pharma Bust? The Takeda – Shire Merger

The mammoth deal that is the Takeda acquisition of the Ireland-based, Shire Pharmaceuticals, has had more bumps in the road than the New Jersey Turnpike. The regulatory review processes in China, the United States, and the E.U. each had their own type of issues relative to this enormous merger proposal.

The news this week is that now that the regulatory hurdles have been largely negotiated successfully (the European Union approved the deal on November 21) the former chairman of the board of Takeda has now come forward to the media in opposition of the merger.

Kunio Takeda, the last member of the family whose name is “on the door”, so to speak, who served in the top position for a period of 16 years; is against the deal because of the high level of risk the company is taking by swallowing up Shire. The full stockholders meeting which will feature a vote on this controversial strategic move will take place on December 5th.

The former chairman leads a group of investors that is also opposed to the deal and this move yesterday to bring those concerns to the media is a concerted attempt to subvert the perception of this proposed acquisition ahead of the crucial vote on the 5th. The merger is not without scrutiny, as many different factions from industry experts, to Wall Street analysts, to shareholders in Europe and the U.S. alike all had doubts that this merger could ever be consummated.

The risk to Takeda is heightened by their recent purchase of Baxalta, and many within the inner circles of the industry were openly questioning their pursuit of a consolidation of Shire. The Irish drug maker, at that time, had sold off their oncology portion of the business and trying to compete in a rapidly changing pharmaceutical landscape.
Takeda will take on significant debt overall from their own balance sheet, to the costs of pulling together a deal of this magnitude ($62 billion), and taking on the debt that Shire has accumulated on their balance sheet. This is the rationale behind the opposition that is being demonstrated within Takeda in recent days.

The argument could be made that Takeda could have stood pat with their success in diabetes and hypertension medications. The company looks to push through this M&A activity with Shire as a way to crack the Top 10 pharmaceutical companies in the world. It is apparent that some of the regulators have not considered that we have seen “too big to fail” companies in other industries collapse after biting off more than they could chew. It would be a devastating blow to the overall pharma industry if Takeda went down the path to ruin because of this deal.

The original concerns from the beginning of this proposed deal are still lingering around: the value of the return to the shareholders, the debt taken on by Takeda to make it happen, and the overall valuation of Shire being perhaps inflated. These components, both collectively and individually, do not seem to be throwing the merger train off course here, with some industry news outlets reporting that reps from both companies expect that the deal will be completed in the first week of January.

Takeda is looking at the diamonds in the Shire pipeline, but reportedly have looked at other brands in the Shire domain as potential targets for sale to help pay down some of the enormous debt that will be incurred. These two companies on their own are huge, so the redundancy and lost jobs is another functional reality of such a large merger.

It remains to be seen whether the consumer will benefit from this deal, if it will translate into better leverage for the combined company with the pharmaceutical distributors, it could become a scenario where they jump up the prices on medications to help offset the debt load. This is where the consumer concerns over this merger could become an unfortunate reality.

(Some background information and statistics courtesy of Seeking Alpha, BioSpace.com, CNN, and Asia Nikkei)

by Frank Maduri

Follow Up: AT&T Plans To Buy Time Warner Hit Snag

In a follow up to a recent piece on this potential merger, the plans for AT&T to obtain Time Warner for $85 billion hit a snag on Wednesday. The government regulators involved have interceded and have stated that AT&T has to sell either CNN and other related network holdings within Turner Broadcasting , or sell their ownership stake in DirecTV in order for the deal to move forward.

This consolidation of ownership or control of so much content is the issue at hand for the federal regulators. The most honest assessment of this merger is that the control of content was always going to be an issue with this proposal.

The fact remains that AT&T would have too much control over both sides of the content pipeline in their proposed arrangement, that it can have drastic impact on price controls for the consumer.

The average viewer is now streaming more content than ever before, and AT&T has a master strategic plan to become a larger player in the streaming content side of the business. Their purchase of DirecTV started that process with the introduction of a streaming service for customers of that satellite service which has garnered fairly good reviews.

The more troubling aspect of the news today was the response by AT&T who have doubled down on their stance that they will fight any changes to the deal. They are bullishly against selling any assets and are essentially going to attempt to “push through” one of the largest telecommunications mergers in American history.

The pursuit of Time Warner by AT&T has been fraught with problems from the outset. In my view, I can understand why both sides want to get something done in the way of consolidation: Time Warner is struggling to keep their vast media empire relevant in a rapidly changing landscape where print media is dying, and television is becoming increasingly competitive. AT&T would gain a tremendous amount of content for their own service via DirecTV and would be able to charge other industry players for their content.

The major issue is that the merger would make AT&T too gigantic and put their hands into “too many pots” which is an anti-trust conflict in the purest form. AT&T could charge more for cellular phone service or for the apps for the content on the smart phones. AT&T could wield enormous influence over the carriage agreements of all the current Time Warner broadcasting mediums.

The divestiture of one of these assets as identified by the federal regulators is absolutely necessary when you consider the size of Time Warner and the diversification of AT&T. The “mega mergers” of recent years have all had some sort of pothole on the way to fruition.

However, in this case, we are left to consider this question: what if AT&T sells Turner Broadcasting and the deal still does not gain approval? What if the deal never is approved by the regulators?

I am not sure at this point who would be in position to purchase Turner Broadcasting while also maintaining approval from the regulators involved. The deal may never gain approval, that is a realistic possible outcome at this point. The most likely outcome would be that Time Warner is sold off in pieces to different competitors in each of the media spaces they operate within.

This is a developing situation and where it leads could have a massive impact on the consumer in the coming months. The growth of AT&T is alarming and the argument can be made that they should be stopped, it remains to be seen if that will take place.