Thoughts on Takeover news

Takeover news can be both favorable and unfavorable, depending if the company is the one issuing the offer or the one receiving the offer. The amount offered or rumored to be transacted plays another part. So this is the logic: when company A pays a premium buying company B, share prices of company B will roar upwards while company A’s shares may plunge (due to the ridiculous offer) or surge (due to it being a great acquisition).

After Broadcom (AVGO) was recently disallowed on its attempt to take over Qualcomm (QCOM), Qualcomm’s share prices tumbled immediately through the public’s disappointment. Then again, Broadcom must have seen something in Qualcomm to be interested. Broadcom may not be able to buy Qualcomm but there is nothing stopping us investors?

Relating to a recent event, Shire (SHP) has been taken negatively by investors due to the high premium it paid taking over Baxalta in 2016. Despite diligently reducing their debts ever since, its share prices have been dropping from its all-time high. It is now a cheap stock which revenue is growing healthily, at a current low P/E and low P/BV ratio. Its share price is also way below its industry index. Speculations were that Shire may be a next takeover target and few fund managers have also been actively adding Shire to their portfolio since last year.

Then just last week, look what happened when Takeda (TKPYY) announced its consideration to take over Shire at $50 billion.

The offer was stretched, and in fact it was above Takeda’s own capitalization of $42 billion. It was quoted to be “Japanese company’s biggest takeover ever” if it was ever successful.

While Shire’s investors cheered, Takeda’s investors were disappointed on the premium “proposed”.

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