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Apr 15, 2013

Royalty Makes $7.3B Play for Elan

  • In the midst of an ongoing takeover battle between Royalty Pharma and Elan, Echo Pharma Acquisition (Royalty Pharma) today made a firm, all-cash offer for Elan potentially valued at $7.3 billion. Royalty Pharma is offering, for each outstanding share and each Elan share:

    • $12.00, if the strike price for Elan’s previously announced Dutch Auction is $11.75 or $12.00;
    • $11.50 if the Dutch Auction Strike Price is $11.50;
    • $11.25 if the Dutch Auction Strike Price is $11.25; and
    • $11.00 per Elan Share if the Dutch Auction Strike Price is equal to or greater than $12.25 and less than or equal to $13.00, or upon the occurrence of certain other events.

    Royalty says that if Elan confirms its net cash position on the terms it has set, the offer price will be paid in cash. If Elan fails to do so, the initial cash component will be $1.00 less and holders of Elan shares will be issued a right to receive up to $1.00 in cash based on Elan’s net cash position. (To view full details of Royalty’s offer, click here.)

    Hours later, Elan's board responded by repeating earlier statements that it would consider "any formal proposal by any party for Elan," adding: "The Board of Elan will, in line with its obligations under Irish Takeover law, promptly assess the Royalty Pharma announcement and will advise its shareholders accordingly."

    On February 22 Royalty offered $6.55 billion for Elan, or $11 per American depository receipt and share in the Irish-owned biotech, but Elan did not find the offer to be fair. Nearly two weeks ago, Ireland’s Takeover Panel, which oversees business takeovers in the republic, set a May 10 deadline for Royalty to make a formal offer for Elan or declare that it would give up plans to buy the biotech giant. Royalty says today’s offer represents a 23% increase over the enterprise value of Royalty Pharma’s initial proposal and a 39% premium over of the undisturbed Elan enterprise value.

    “Elan today consists of cash and a royalty on Tysabri,” comments Pablo Legorreta, founder and CEO of Royalty Pharma. “Based on our analysis of Elan’s Tysabri royalty and the implied valuation of Elan’s economics in Tysabri reflected in Elan’s recent transaction with Biogen, we believe that our offer represents a full and fair value for Elan. We remain hopeful that the board of Elan will consider our offer and recommend it to its shareholders. In order to obtain the full amount of our offer in cash in the shortest time frame, Elan’s shareholders should encourage Elan’s board to engage immediately with Royalty Pharma.”

    The offer will be financed through a combination of existing resources available to Royalty Pharma and new credit facilities arranged by Merrill Lynch, Pierce, Fenner & Smith Incorporated, and J.P. Morgan Securities.


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