For Takeda Pharmaceutical’s CFO, ‘Speed and Agility’ Were Key to Shire Tie-Up
Takeda Pharmaceutical Co.
Its 2019 takeover of Europe’s biggest rival Shire PLC made it one of the world’s most indebted pharmaceutical companies. Four years later, Takeda has not only reduced its debt to what it considers a healthy percentage, but has exceeded expected cost savings by $900 million a year ahead of schedule.
Despite investor skepticism that Asia’s biggest pharmaceutical company could pay for it Taking on $60 billion in debt to complete the deal while maintaining dividends to shareholders, Takeda did both. The company’s net debt to adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda — a debt ratio that shows how many years it would take a company to pay off its debt — has fallen to 2.5 as of Dec. 31 from about 5 percent at the time of acquisition. Since the acquisition, the company has more than doubled its revenue to nearly $30 billion for the fiscal year ending March 31, 2022, from $14.6 billion for the fiscal year ending March 31, 2018, before the tie-up was announced.
Takeda hasn’t stopped making deals either, continuing to build its drug pipeline. On February 8, Takeda announced the closing of a $4 billion deal to acquire Nimbus Lakshmi Inc., a subsidiary of Nimbus Therapeutics LLC. With this purchase, Takeda has full ownership of a drug for psoriasis as well as several other immune-mediated diseases. Takeda’s core products are in oncology, rare genetics and hematology, neuroscience, gastroenterology, plasma-derived therapies and vaccines.
Behind the successful Shire joining: Financial Director of Takeda, Kostas Saroukos. Mr. Saroukos joined Takeda in 2015 as CFO of Takeda’s European and Canadian operations before becoming global CFO in 2018. Prior to that, he was Allergan’s head of finance and business development for the Asia Pacific region and spent 13 years at Merck & Co. as executive financial director for Eastern Europe, Middle East and Africa among other responsibilities. Long before Takeda’s acquisition of Shire, Mr. Saroukos was part of Merck’s 2009 acquisition of Schering-Plough and the acquisition of Allergan Inc. by Actavis PLC in 2015.
With the Shire integration now behind him, CFO Journal spoke with Mr. Saruko about how he and the Takeda team brought the two drug giants together, how they paid down debt ahead of schedule, and what he sees for debt in the near term and pipeline company drugs. His answers have been edited for length and clarity.
WSJ: What did you learn from your experiences integrating deals that helped integrate Takeda and Shire?
Mr. Saroukos: Many of the executives, myself included, have been on both sides of an acquisition. One of the first things we discussed early on was how to avoid past mistakes from our combined experiences. The answer was speed and agility.
One of the worst ways to do a consolidation is to continue to operate separately, such as having different names on buildings for a long time. So once we closed the deal, we had the entire organization under one name—Takeda. There was no “What company are you from? Legacy red or blue?’ It is important to break it down quickly and become a company and a brand in order to bring about transformation and innovation. That was our number one priority.
“There was no “what company are you from? Legacy red or blue?’ It is important to break it down quickly and become a company and a brand in order to bring about transformation and innovation. “
Another reason speed is important is to avoid losing talent. You want to move quickly, figure out which businesses to focus on, pick the leaders for those businesses as well as their deputies as quickly as possible, and lock it down. Diego to review the integration strategy, our vision and the therapeutic areas that the combined Takeda will focus on so that the implementation in each local unit can be done as quickly.
WSJ: Were there any cultural differences per country that you had to consider, given that Japanese and European cultures are quite different?
Mr. Saroukos: Not so much with employees, but where you saw a cultural difference was with our investor community. It was the largest acquisition in Japanese history and a top 10 acquisition in the biopharmaceutical world. Japanese investors are traditionally very conservative in acquisitions, based on many failed deals in the past. Understandably, they were skeptical about how we would fit the amount of debt we had taken on into that scale.
We had committed to reduce net debt to adjusted Ebitda from 5.0 to a low of 2.0 by the 2023 financial year which starts on 1 April. This compares to a global industry average of 2.0 and a Japanese industry average of under 1.0. We had also committed to sell $10 billion worth of non-core assets and deliver $1.4 billion in synergies that would also hit the bottom line and improve margins. Many investors—not just Japanese—were skeptical that we could do this while maintaining the dividend, but Japanese investors were more concerned.
WSJ: How did you manage to pay down $60 billion in debt while maintaining dividends?
Mr. Saroukos: We started by making sure we had an accurate financial reporting tool as quickly as possible that tracks an integrated number and a version of the truth in order to understand synergies, cost savings and how to implement a plan to achieve our goals.
We did this by leveraging an existing financial reporting tool that I built internally when I was CFO of Canada and Europe. It’s called “CFOinUrpocket” and it’s a trademark. Back then, I wanted to have a digital reporting tool where I could see the P&L status of an app. Having this existing tool was great because 30 countries were already using it. We expanded CFOinUrpocket to be used globally in 80 countries for the combined Takeda and Shire offices. This allowed us to accurately track the integrated financials in an integrated system one month after the deal closed. Again, speed was crucial.
With that, we identified 10 “synergy cost packages,” which included things like compensation and benefits, contractors, consulting, travel, and more. their cost savings were tracked against it target once a month. Individual cost savings were then linked to individual KPIs [key performance indicators]. The effort was all connected in a closed loop for everyone.
As a result, we delivered not $1.4 billion, but $2.3 billion in savings a year ahead of schedule.
WSJ: Right now the yen is weak and in your favor. What would you do if the yen strengthened?
Mr. Saroukos: Our guidance is based on a fixed exchange rate and we are not motivated by exchange rate fluctuations. What has helped is maintaining a debt profile that matches the cash flow we generate—50% of our debt profile is in US dollars, 20% in Japanese yen, and the rest is in euros. So it’s naturally offset.
What I’m very proud of is that three to four years ago, we had the foresight to lock in a 2% rate. I thought interest rates weren’t going to be this low forever, so we did everything we could to lock in as much as possible. I am pleased to say that, as of now, 100% of our debt is fixed at a weighted average interest rate of 2%.
WSJ: What keeps you up at night?
Mr. Saroukos: I don’t know, I sleep well, I work so hard. However, if you had asked me the same question three years ago, I would have answered differently. It wasn’t easy. It was difficult and challenging with a lot of pressure. But with integration back, it’s now about ensuring that the pipeline continues to perform. Over the next 12 months, we will start to see more positive news coming down the pipeline.
Write to Anna Mutoh at email@example.com
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