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Royalty Pharma proposes to acquire Elan, gets cold shoulder instead
NEW YORK—RP Management, LLC (Royalty Pharma) has announced a proposal to acquire Dublin-based Elan Corporation, plc. The company noted that initial contact was made on Feb. 18 with Elan's chairman of the board, followed by a meeting on Feb. 20 in which Royalty Pharma made an indicative proposal "to acquire the entire issued and to-be- issued share capital of Elan."
Royalty Pharma's proposal, on an indicative basis, is for $11 per share of Elan stock and Elan ADS. The potential offer represents a 6.3-percent premium over Elan's closing price on Feb. 15 of $10.35, and comes out to an aggregate deal total of approximately $6.5 billion.
Royalty Pharma has attached several pre-conditions to its proposal, which includes the completion of due diligence of Elan, no acquisitions on Elan's part (excluding the pending completion of Elan's sale of its multiple sclerosis drug Tysabri to Biogen Idec Inc.), the completion of the Tysabri transaction and unanimous recommendation of the offer by Elan's board of directors, among others.
Elan's response to the proposal has been disinterested, noting the "highly opportunistic timing of the announcement … before the company's shareholders have had the opportunity to assess and realize the full benefit of the Tysabri transaction and the partial unlocking of its value." Elan notes that it has spent more than a year working on "a number of strategic transactions that, should they be consummated, would be to the benefit of our public shareholders." The company noted that "any credible proposal" made by Royalty Pharma or other parties would of course be considered alongside its current strategic plans.
The Tysabri transaction consists of a restructuring of Elan's profit share agreement with Biogen Idec, and will provide Elan with $3.25 billion in an upfront payment. Elan released a Feb. 22 announcement regarding its plans for the funding, and chief among those plans are its strategic initiatives for various business assets, noted Elan in its press release.
"From a portfolio point of view, these assets will, characteristically, diversify Elan from a product, science/clinical, therapeutic and geographic point of view … we have spent significant time evaluating assets around the world and establishing relationships that might ultimately lead to constructive strategic transactions," the company noted. "We are pleased with our progress along these lines. We are enthusiastic about the opportunities that exist and we expect to be in a position to announce a number of strategic transactions upon or following the close of the Tysabri restructuring."
Once the transaction is complete, Elan will also refinance its outstanding debt and will initiate a $1 billion share repurchase program. Though the company has been sparing with any specifics, it remains optimistic regarding its outlook and options following the Tysabri transaction.
"Our actions over the past years have been consistent in theme and execution. We have reduced risk (financial, asset concentration, infrastructure burden) while, at the same time, preserving the upside from future advancement of science, clinical or commercial products," said Kelly Martin, CEO of Elan, in a press release. "By unlocking a portion of the Tysabri asset value while retaining a significant earnings upside, we have a unique opportunity to reward shareholders, diversify our business and create a highly distinctive business platform upon which to advance to the benefit of shareholders and patients around the world."
Robert Cyran, a Reuters Breakingviews columnist, determined that the proposal "probably won't be enough" to sway Elan from its current plans, noting that the company is now "primarily a cash-rich royalty machine rather than a drug producer." The dangers of such a "cash shell," according to Cyran, are that "management pursues value-destructive deals, overpays itself for doing relatively little or both," though he did concede that Elan's decision to repurchase $1 billion worth of its own stock and refinance its debt somewhat reduces that risk. As it stands, however, Cyran still deems Royalty Pharma's deal "too scrawny."