Shares in Shire (SHP) have jumped to the top of the FTSE 100 after Japan's largest drugmaker Takeda Pharmaceutical (4502.T) said it was considering a bid for the company.
Shares in the pharmaceutical group jumped 17.3% to £35.98, providing a boost to backers of the stock, which is popular among value-focused fund managers.
Jamie Seaton is the highest conviction investor in the stock, having built up a 9.9% position in his £321 million GVQ UK Focus. That's just below the 10% limit imposed by Financial Conduct Authority regulations, meaning today's jump is likely to force him to sell some of the stake.
The stock is meanwhile a top 5 position for Paul Major, manager of the BB Healthcare (BBH) investment trust, accounting for 5% of the portfolio.
Shire has attracted backing from a number of value-focused investors, as its shares have drifted lower this year amid greater competition from generic drugs.
Other fund manager investors include Scott McKenzie, with 4.6% of his £14 million Saracen UK Alpha fund held in the stock; Henry Flockhart, with a 3.9% position in his £235 million Standard Life Investments UK Equity High Alpha fund; and Luke Chappell, with 3.3% of his £307 million BlackRock UK Equity fund.
'There hasn’t been a cross border transaction in the sector, excluding joint ventures and small generic mergers and acquisitions,' he said.
'Takeda’s cash laden balance sheet appears a good fit for Shire’s struggling balance sheet, following recent large-scale mergers and acquisitions. The attraction for Takeda is the highly lucrative rare disease market in the US, which comes with exceedingly high margins and is largely exempt from the usual pricing pressure that affects the wider pharmaceutical sector.'
Takeda said its approach was 'at a preliminary and exploratory stage and no approach has been made to the board of Shire'.
Jefferies analyst Peter Welford, who rates Shire a 'buy', said he could 'see the potential strategic rationale for the deal' but flagged concerns over Takeda's relative size.
'We see the possible strategic fit given the Japanese pharma's focus therapeutic areas of oncology, gastrointestinal and neuroscience, with Shire bolstering the latter two franchises,' he said.
'We note Takeda's current market cap is around $42 billion, which compares to Shire's $47 billion. We presume Takeda would need a significant equity raise to acquire Shire, suggesting a "merger" is perhaps better terminology, which may raise hurdles to the successful completion of any future deal.'