Takeda Pharmaceutical’s Extraordinary Shareholders’ Meeting regarding its acquisition of Shire, a major bio-pharmaceutical company based in Ireland, is expected to take place in December. Under the Tokyo Stock Exchange rules, third party subscription offering of new shares which results in a share dilution exceeding 25% requires a shareholders’ resolution. Given that it will be considered a preferred issuance, it will also require an extraordinary resolution of 2/3 shareholders’ votes. It is therefore that the coming Shareholders’ Meeting will be a forum to approve or disapprove the Shire acquisition.

 Will Takeda be able to successfully integrate Shire after the merger? Shire is a company that has grown by successive M&As. Will Takeda management be able to control such veterans of  

many a battle? One needs to be extremely cautious of the enormous debt and goodwill it will take on. Shire carries on its book a very large amount of goodwill as a consequence of past acquisitions, Additionally, the payment of large premium by Takeda for the acquisition will also cause to bloat Takeda’s goodwill. If the post-acquisition operations do not proceed as planned, Takeda will need to write down the goodwill, and face a situation similar to Toshiba’s acquisition of Westinghouse. Takeda shares have dropped and have remained at some 30% below since the announcement of the proposed acquisition. Is this not a sign that investors are concerned about the pending M&A?

 From the point of view of corporate governance, it is of upmost interest whether or not deep-down discussions took place on these issues and risks at its board meetings, including independent outside directors. Overseas investors also are vested with fiduciary responsibility to scrutinize the agenda before casting their votes.  It is also of great interest how domestic investment advisory companies will vote, given their obligation to provide explanation under the Stewardship Code.