Shire disposal leaves BB Healthcare stake in limbo
Shire Pharmaceuticals’ announcement this morning of an agreement to sell its oncology business to Servier for $2.4bn in cash, leaves the stake in the company held by BB Healthcare Trust (BBH) – the only sector specialist investment trust to have significant exposure – in limbo. This is because the move may frustrate the attempted takeover of Shire by Japan’s Takeda, which has been behind a recent run up in Shire’s share price.
The disposal may make Shire less attractive to Takeda, as oncology is one of its key therapeutic area and the disposal removes on the planks supporting the rationale for a tie-up.The transaction also gives Shire more flexibility to pursue an alternative M&A strategy of its own, assuming an offer is not forthcoming, including the option to return cash to shareholders via share buy-backs.
BB Healthcare received an unexpected boost to NAV performance in March after an otherwise difficult month, when Takeda effectively disclosed its interest in mounting a takeover for Shire, which is the trust’s third largest holding accounting for 5.7% of its NAV. Shire’s share price rose by 14% on this disclosure, which came on 28 March. Shire’s disposal of its oncology unit, which achieved a heady revenue multiple of 9.2 times sales (the business recorded sales of $262m and an EBITDA of $140m last year), means that the company will become more tightly focused on rare disease and neurology and it is known that a de-merger of the latter is under consideration.
Under UK takeover panel rules, the initial disclosure gives the Japanese group until 25 April to table a formal offer for Shire. However, prospects for this remain uncertain – not least because Shire’s market capitalisation of $46bn is almost a third higher than Takeda’s $35bn. Thus, any offer it could make would have likely have a relatively modest premium and would have to include a large portion of equity. Takeda’s move is thought might be more likely to tempt other parties, perhaps Pfizer or AbbVie, into makeing an alternative offer.
BB Healthcare is a long-only vehicle with a concentrated portfolio of global healthcare equities with a max of 35 stocks, although currently, it has just 30 holdings. BB Healthcare saw a 2.1% fall in NAV last month, beating the 4% decline in the benchmarks sterling-value of the MSCI Healthcare index. The trust’s share price declined by 1.8% in the month. The decline reflected the broader-market fall in March across healthcare stocks, although among its top 10 holdings, Dexcom, a developer of continuous glucose monitoring systems for diabetes management, was a positive standout with a 32% stock price rise.
BB Healthcare’s top 10 holdings, as of the end of March, are shown in the table below.
| Mar-18 NAV | |
| Align Technology | 7.8% |
| Anthem | 6.5% |
| Shire | 5.7% |
| Illumina | 5.3% |
| Dexcom | 5.2% |
| Celgene | 5.0% |
| Intuitive Surgical | 4.30% |
| Teladoc | 4.3% |
| Amerisource Bergen | 4.2% |
| Wallgreens Boots | 3.90% |
| Top 10 | 52.2% |
Shire disposal leaves BB Healthcare stake in limbo