Hedge funds bet £1bn on knife-edge bid for Shire

UK drugs giant tipped to fall to Japanese in crunch vote on megadeal

POWERFUL American hedge funds have placed £1 billion of last-minute bets on FTSE 100 drugs firm Shire being bought by a Japanese rival for £46 billion this week.

The takeover, which would be the second largest ever for a British company, is on a knife-edge after shareholders of potential buyer Takeda expressed doubts about the debtfuelled deal.

They will vote on the megadeal in a crunch meeting on Wednesday after months of speculation in the City about whether it will get the green light.

Shire, run by Danish chief executive Flemming Ornskov, is best known as the maker of ADHD hyperactivity drug Adderall.

Takeda, which has French former GlaxoSmithKline executive Christophe Weber at the helm, has been trying to convince investors of the deal’s merits since agreeing the tie-up in April.

In a significant setback last week, former chairman Kunio Takeda made an 11th hour plea to shareholders to reject the deal.

Other members of the family which founded and previously ran Takeda have also hit out at the takeover and said it would have ‘disastrous’ consequences for the business. Takeda is smaller than Shire.

The Mail on Sunday has learned that in recent days Baupost and Paulson – two of the world’s most influential investors – have quietly placed huge bets that the deal will go through and secure them a quick profit.

Shares in Shire will rise if the proposal is passed by Takeda shareholders because the lingering doubts have kept its current share price slightly lower than the bid price.

By contrast, Takeda’s share price is expected to fall – as it did when its approach for Shire first emerged.

However, if the deal does not get the nod then shares in Shire could plunge and Takeda stock could rise, proving very costly for the hedge funds.

It emerged on November 20 that Boston-based Baupost, run by billionaire Seth Klarman, has bought more than 10 million shares i n Shire, worth £460 million.

On the same day, it took out a large short position against Takeda worth around £120 million in a bet that the Japanese firm’s shares will fall.

Two weeks ago, New York- based Paulson, run by John Paulson, snapped up 9.4 million shares worth more than £420 million. That means that between them, the two hedge funds have staked about £1 billion on the deal.

Potential losses on the bets far outweigh the possible profits, which would be in the region of tens of millions of pounds for both hedge funds.

The Shire share price is £45 – about £4 less than the cash and stock offer, currently worth about £49 based on Takeda’s latest share price in Tokyo.

Hedge funds have become key players in major UK takeover battles this year by taking late stakes in British companies such as Sky and engineer GKN before they were bought by Comcast and Melrose respectively.

Baupost built up a stake of nearly five per cent in Sky before Comcast sealed a £30 billion takeover in September and is thought to have made a £600 million profit in just a year.

Shire was founded in Basingstoke, Hampshire, in 1986 before listing on the London Stock Exchange ten years later. It relocated its headquarters to Dublin in 2008 to cut its tax bill.

Since then, it has made several major acquisitions to become a big player in the US market.

That led to a £ 32 billion takeover approach from American giant AbbVie in 2014, which was abandoned after President Obama’s clampdown on socalled tax inversion deals.

At the time, American drugs firms had been looking to buy companies overseas so they could shift their headquarters and lower their corporate tax bills.

In 2016, Shire shelled out £22 billion to buy the US rare diseases specialist Baxalta.

Britain’s biggest pension funds are invested in Shire through investment giants such as Fidelity and Legal & General.

It would be the second largest takeover of a British company ever at £57.5 billion including around £13 billion in debt, according to financial data group Dealogic. It is beaten only by AB InBev’s £88 billion swoop for Peroni beer brewer SABMiller in 2016.