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Apr 3, 2013

Clock Ticking in Elan Takeover Battle

  • Ireland’s Takeover Panel, which oversees business takeovers in the republic, today set a May 10 deadline for RP Management (Royalty Pharma) to make a formal offer for Elan or declare it will give up plans to buy the biotech giant for more than double what it gained from selling its 50% share in the multiple sclerosis drug Tysabri to Biogen Idec.

    Royalty Pharma—an investment management firm that takes stakes in royalty streams generated by biopharmaceuticals—angered Elan when it announced plans February 22 to offer $6.55 billion for Elan, or $11 per American depository receipt and share in the Irish-owned biotech—3.8% above Elan’s closing share price on February 22, but 6.4% below yesterday’s per-share closing price of $11.75. Royalty Pharma says it delivered a letter containing its proposal to Elan chairman Robert A. Ingram on February 20 during an in-person meeting.

    Elan, which has viewed Royalty Pharma’s overture coolly, today restated its skepticism of the offer in a statement: “The ‘proposal’ by Royalty Pharma remains an indication of interest, is highly conditional and may or may not lead to an offer being made for the entire issued share capital of the company.”

    “The highly conditional indication of interest is opportunistic in its timing,” Elan sniffed. The company also added: “Any credible proposal which may be made by Royalty Pharma or any other party will of course be considered by the company,” alongside the deal for Tysabri, which closed yesterday.

    The Tysabri deal generated for Elan $3.25 billion cash plus future double-digit tiered royalty payments on all indications of the drug. For the first 12 months Elan will receive 12% royalties on in-market sales of Tysabri; after that, Elan will receive 18% royalties on in-market sales up to $2 billion and 25% royalties on in-market sales exceeding $2 billion.

    Tysabri racked up $1.6 billion in in-market sales last year split between Elan and Biogen Idec. Elan once predicted Tysabri sales will zoom by 2016 to between $2.5 billion and $3 billion, while analysts have offered more cautious forecasts.

    Elan announced plans in February to spend $1 billion of the proceeds from the Tysabri deal to repurchase outstanding shares, use part of the money to refinance debt, and invest “a portion” into companies intended to “diversify Elan from a product, science/clinical, therapeutic, and geographic point of view,” by capitalizing on relationships with potential partners in these deals. Last month after Elan’s offer became public, Elan added another sweetener, saying it would set aside up to 20% of future royalty payments to shareholders.

    Also last month, Royalty Pharma began meeting individually with key shareholders, hoping to drum up support for its Elan offer. In a 24-page presentation made public on its website, Royalty Pharma sought to assure shareholders it could and would move quickly on a takeover, saying it expected to complete “due diligence” reviews in 20 days, and noting that its M&A advisors were J.P. Morgan, Bank of America’s Merrill Lynch, and Groton.

    “$1.1+ [billion] of cash on hand plus ‘highly confident’ letter from BofA Merrill Lynch and J.P. Morgan; banks are prepared to provide committed financing upon completion of diligence,” Royalty Pharma stated in a bulletpoint within its presentation.

    “Elan shareholders have a clear choice: full value in cash today OR assume risk associated with Elan acquisition strategy,” Royalty Pharma declared.


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