LONDON/NEW YORK/TOKYO (Reuters) - Rare disease specialist Shire said on Wednesday it was willing to recommend a sweetened $64 billion offer from Japan’s Takeda Pharmaceutical Co to shareholders, in what would be the biggest acquisition of a drug company since 2000.

But Takeda’s shares extended recent losses, tumbling 7 percent as investors fretted over its ability to buy a company twice its size, raising doubts about whether Shire shareholders will accept a bid that is 56 percent in new Takeda shares.

The stock slide - 18 percent since the news of a possible bid broke - makes the cash-and-share deal less appealing to Shire shareholders, some of whom may be reluctant or unable to hold Takeda shares.

“The chances are UK shareholders in particular are not going to want Takeda shares, so there’s going to be a forced discount because some people are going to sell it,” said Neil Dwane, global strategist at Allianz Global Investors, which holds 1.1 percent of Shire, Thomson Reuters data showed.

Shire shares ended 2.8 percent down at 38.20 pounds, well below Takeda’s 49 pounds offer, signaling scepticism about the deal as Takeda’s falling stock price erodes the bid’s $64 billion headline value.

Without a deal, Shire shares could fall back to mid-March levels of 30-32 pounds, pressuring management to find other ways to realize value. Prior to Takeda’s approach, Shire was already considering divestments and a split in its operations.

It is now four weeks since Takeda first revealed it was considering a bid and the absence of firm interest from rivals means investors see only a low chance of an interloper emerging.

GlaxoSmithKline Plc ruled itself out of the running for Shire on Wednesday, after reporting quarterly results.

The latest development, first reported by Reuters, comes after London-listed Shire rejected four previous offers from Takeda.

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The fifth offer is worth 49.01 pounds per share, comprised of 27.26 pounds per share in new Takeda shares and 21.75 pounds per share in cash. That represents a 4.3 percent premium to Takeda’s fourth proposal on April 20 and an 11.4 percent premium to its first approach on March 29.

SURGE IN DEALMAKING

Dealmaking has surged in the drug industry this year as large players look to improve their pipelines. A Takeda-Shire deal would be the sector’s second largest ever, ranking only behind Pfizer’s purchase of Warner Lambert, which was completed in 2000. Including Shire’s debt, it is worth $80 billion, according to Thomson Reuters data.

Shire, a member of Britain’s benchmark FTSE 100 stock index, said its board agreed to extend a Wednesday regulatory deadline to May 8 so Takeda can conduct more due diligence and firm up its bid. Shire added the deadline may be extended further if needed.

Any deal is subject to the resolution of several issues, including completion of due diligence by Shire on Takeda, the Dublin-based company said.

A deal would significantly boost Takeda’s position in gastrointestinal disorders, neuroscience, and rare diseases, including a blockbuster haemophilia franchise.

If successful, it would be the largest overseas acquisition by a Japanese company and propel Takeda, led by Frenchman Christophe Weber, into the top ranks of global drugmakers.

Weber, who became Takeda’s first non-Japanese CEO in 2015, has said publicly it was looking for acquisitions to reduce its exposure to a mature Japanese pharmaceutical market.

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The combined company would have its primary listing in Tokyo and also offer American Depository Receipts - a move that would give Shire investors an opportunity to cash out more easily.

But the transaction would be a huge financial stretch, and Takeda investors have been skeptical about the merits of a Shire deal, given the size of the potential purchase and concerns that a large share issue will be needed to fund it.

Moody’s said the deal would pile up debt and hit Takeda’s credit ratings. “This huge acquisition bodes a spike in leverage that could result in a multi-notch downgrade,” said analyst Yukiko Asanuma.

Ambitious cost cutting is also seen as necessary to make the deal pay, and the uncertainties facing an enlarged group would spell a big change in the investment case for holding Takeda.

“Takeda’s shares have been valued for their stability and relatively high dividend,” said Daiwa Securities analyst Kazuaki Hashiguchi, adding this made them attractive even to investors without specialist knowledge of the drug sector.

Takeda, now worth $33 billion by market value, had 466.5 billion yen ($4.3 billion) in cash and short-term investments as of end-December. It said on Wednesday it intended to maintain its dividend policy and investment-grade credit rating following the deal.

CHALLENGES AT SHIRE

Shire has long been seen as a likely takeover target.

Botox-maker Allergan Plc said last week it was considering making a rival offer, only to scrap it hours later due to pushback from shareholders. Shire was also nearly bought by U.S. drugmaker AbbVie Inc in 2014, until U.S. tax rule changes caused the deal to fall apart.

Shire traces its roots back to 1986, when it began as a seller of calcium supplements to treat osteoporosis, operating from an office above a shop in Hampshire, southern England. Since then, it has grown rapidly through acquisitions to generate revenues of about $15.2 billion last year.

But it has been under pressure in the past 12 months due to greater competition from generic drugs and debt from its $32 billion acquisition of Baxalta in 2016, a widely criticized deal.

It announced last week a sale of its oncology business to unlisted French drugmaker Servier for $2.4 billion.

($1 = 0.7170 pounds)

($1 = 108.8200 yen)