Nishimura & Asahi lawyers Hiroko Shibata and Yoshiyuki Asaoka discuss their work as buyer's counsel on Japan’s largest ever foreign takeover with Adam Majeed

How did your firm win the Takeda mandate?

HS: We have worked for Takeda in many significant transactions previously; for example, we represented them in the establishment of a joint venture with Teva in the generic drug area recently in 2016. Other than that we have been working for Takeda on a continuous basis on various matters including general corporate matters. Accordingly, for Japanese counsel in this transaction, there was no question in appointing us to this mandate.

Have you had previous experience working on an acquisition this big or was this something unique?

YA: We do major Japanese transactions on a regular basis. For example, in 2018 we carried out Toshiba’s sale of its NAND memory business to KK Pangea, which was about $20 billion. So although this is the largest transaction to ever happen in Japan for a Japanese company, we are accustomed to big deals.

What were the key drivers for Takeda in making this acquisition?

YA: There were several drivers for Takeda in pursuing this opportunity and one was globalisation. Although Takeda is the biggest pharma company in Japan, market conditions were becoming more and more competitive in Japan such that strengthening the footprint in the US and other foreign markets was inevitable. This acquisition helped Takeda scale globally and was expected to push it up within the top 10 largest global pharmaceutical companies.

Secondly, Takeda wanted to accelerate their transformation into a research and development (R&D) driven global biopharmaceutical company. While, as is always the case in this industry, R&D is very costly despite the low success rate, Shire’s diverse pipeline was attractive.

The third point is that there was not much business overlap between these two companies as Shire focuses on rare diseases. In other words, these two companies had strategic synergies in combining their forces. Finally, Takeda had very strong leadership under Christophe Weber – who is obviously oriented to Takeda’s globalisation – and he followed his business judgement to pursue his goal with the support of the Takeda executive team and board.

Did your client require much guidance in the initial phases?

HS: There are not too many choices available when a company wants to acquire a non-Japanese company. I remember when I had my first meeting for this transaction, Takeda emphasised its desire to keep the company Japanese. They value the fact that they’re a Japanese company headquartered in Japan, so they didn’t want to consider options that would change that. Accordingly, the structure for this transaction was very limited.

What were the biggest challenges you encountered when trying to get this deal completed?

YA: There were a lot of laws involved: UK law, US law and Japanese law obviously. Controlling the alignment of legal requirements by closely liaising with co-counsel in these jurisdictions was crucial, to find a path through these applicable rules and regulations to get the acquisition done. For example, the Japanese Companies Act does not provide well for mixed consideration transactions.

We generally do mergers by shares and acquisitions by cash, but in this case we structured this acquisition as a mixed consideration transaction, meaning one half of the consideration was paid in cash and the other by Takeda’s shares. We needed to improvise and find a breakthrough to achieve this goal. From the Japanese law point of view the transaction was structured as a contribution in kind, whereas it was structured as a scheme of arrangement under UK law.

Some aspects of these two structures were hard to reconcile until closing, so we faced challenges to carry that out. Takeda is also a Japanese listed company so listing and share handling rules applied, whereas Shire’s shares were listed in the UK market and subject to UK rules. Practically, there were a lot of things that needed to be aligned, such as the timing of settlement actions and the ways of delivering consideration. Takeda also issued multi-currency bonds for financing and listed their ADS (American Depository Shares) on NYSE for this transaction, where US securities regulations applied, which brought additional complexities and limitations to this transaction.

Takeda’s debt load was an issue that drew the ire of critics. How did you deal with this?

HS: There is not that much a lawyer can do, but Takeda issued messages to the market and shareholders as much as possible and we cosponsored those messages as appropriate from Japanese law and practice.

YA: One of our biggest challenges was to obtain approval of the Takeda shareholders for the acquisition and related shareholder communication, especially with regard to a certain group of shareholders who openly questioned this acquisition. We assisted Takeda in strategising shareholder communication in a lawful manner to ensure that Takeda obtained the shareholder approval at the shareholders’ meeting.

HS: We were in close contact with UK counsel and every time the company tried to do something new or implement a piece of the transaction, we’d take the piece that was allowed in Japan and the UK.

How will Shire fit into Japan’s traditional corporate culture? Has this been accounted for?

HS: Most of the executives in Takeda are non-Japanese. Takeda is unique in that it is a Japanese company but in substance doesn’t operate like a traditional one.

YA: Despite the fact that Takeda is headquartered in Japan, majority of the employee population in the Takeda group work overseas. Also, the majority of its executive team members are non-Japanese, and the majority of its board are outside, independent directors. In this sense Takeda is not a typical or traditional Japanese company anymore. In addition, Takeda’s integration strategy in this transaction was to address and deal with any cultural or integrational challenges they may have preemptively and proactively, as retention of Shire employees was one of the top priority issues in this acquisition.

Has this deal reshaped the Japanese—or indeed global—pharmaceutical landscape? And if so, how? 

HS: This was Japan’s first case in implementing mixed consideration by using Japanese listed company shares, so we opened the door for Japanese companies to acquire non-Japanese companies by using their own shares. That was a landmark moment for Japan’s M&A industry. 

What trends do you see for the pharmaceutical industry in Japan in the short to mid-term?

YA: As indicated in Takeda’s press releases, we expect there to be some divestments and realignments by Takeda in the near future in the process of de-levering. That in turn may also affect other players in this industry, as divested assets would change the competitive dynamics of the relevant area.

So you foresee divestments as becoming a trend in the Japanese pharmaceutical industry?

YA: It’s no longer a trend for pharmaceutical companies to have everything and to be self-contained. There’s also a corporate governance trend in Japan where boards now require management to focus more on core businesses and divest assets at the periphery.

HS: Also in Japan pharmaceutical ventures are growing. Many universities and pharmaceutical companies are focusing on new business and even Takeda has embarked on many new ventures.

How deep was your firm’s involvement in this deal?

YA: We were involved in virtually all aspects of this transaction, not just the Japanese law aspects, by closely liaising with co-counsel. We were also involved in the financing of the deal and ADR listing, and advised Takeda on the extra ordinary shareholders’ meeting held last December.

Who were the other law firms involved in this deal?

YA: From the deal point of view, other than Nishimura & Asahi, Linklaters and Sullivan & Cromwell on Takeda’s side were Slaughter & May and Nagashima Ohno & Tsunematsu on Shire’s side.

Is there scope for law firms beyond the Big Four in Japan to tackle deals of this size?

HS: We had a lot of lawyers working on this and it takes a lot of expertise. We had to work closely in different areas for the client’s benefit and also provide a high level of expertise. I don’t think there are too many law firms in Japan that can handle this type of transaction.

What will be the main focus for your firm’s M&A practice in the year ahead?

YA: We are – or hope to be – instructed on Takeda’s divestments and realignments that may come up and in the life sciences area there are other things bubbling away that we perhaps can’t talk about right now. I know that auto-related M&A corporate work involving autonomous driving and big data projects come to our firm weekly and those areas are just remarkable. Private equity also keeps us interested as there are a lot of divestments by Japan Inc. going on and we’re usually somewhere in the middle of that. This year is no different.