The end of cheap credit could hurry Japanese M&A

IVERIC bio

02/05/2023 09:18

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
       HONG KONG, May 2 (Reuters Breakingviews) - Astellas
Pharma  4503.T  has snapped up U.S. eye-treatment specialist
Iveric Bio  ISEE.O  in a $5.9 billion deal, funded almost
entirely with debt. Diversifying abroad looks attractive to many
Japanese companies given weak home markets. For the $28 billion
drugmaker, which already earns the bulk of its revenue from
overseas, exceptionally low borrowing costs at home may have
boosted its offshore appetite even more.
    The country's third-largest drugmaker by sales is paying a
modest-looking 22% premium to Iveric's share price before the
announcement. The target's key asset, a treatment for a common
cause of vision loss in the elderly, is on track to secure U.S.
regulatory approval later this year. Analysts at Jefferies
reckon those sales could top $85 million in its first year and
peak at $2.4 billion annually by 2034. That should help
compensate for the expiry of the patent on prostate treatment
Xtandi, Astellas' top money spinner, in 2027.
    Financing the purchase with 800 billion yen ($5.8 billion)
in short-term loans and commercial paper is clever and perhaps a
bit aggressive. Astellas, which has been on a buying spree since
2019, sits on a net cash pile. Borrowing at the ultra-low rates
available for quick-expiry debt could end up costing more if the
Bank of Japan  8301.T  is forced to tighten monetary policy in
reaction to rising inflation. Regardless, even Warren Buffett
has taken advantage of Japanese rates to funds deals inside
Japan; domestic corporations looking abroad will as well. (By
Robyn Mak)
    
    Follow @Breakingviews on Twitter

    Capital Calls - More concise insights on global finance:
    DBS' safe profit haven nears its peak  urn:newsml:reuters.com:*:nL4N36Z0ZA
    China’s Midea regains outbound deal appetite  urn:newsml:reuters.com:*:nL4N36Z0UY
    Tech groupthink could hinder AI competition
 urn:newsml:reuters.com:*:nL4N36Y1Y3
    Exxon burns brighter on Permian and Guyana  urn:newsml:reuters.com:*:nL1N36V24F 
    European drug discounts will ruffle U.S. funder  urn:newsml:reuters.com:*:nL4N36V3FY

 (Editing by Pete Sweeney and Pranav Kiran)
 ((SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe
 |))