31 October 2014

Elan calls $6.5bn takeover approach "highly opportunistic"

15:07, Post Reporter

Pharmaceutical manufacturer Elan has said that the timing of an offer by Royalty Pharma to buy it for around $6.5 billion was “highly opportunistic”.

Royalty Pharma said earlier that it had made an indicative proposal to acquire the Irish-based company, offering $11 (€8.34) for each Elan share, causing the share price jump 8.3 per cent.

A statement from Elan said that Royalty Pharma’s proposal “may or may not lead to an offer being made” for the entire share capital of the company. It said that the offer had come before the company’s shareholders had the opportunity “to assess and realise the full

benefit” of Elan’s sale of its stake in its MS drug Tysabri.

Elan said that it has been working for over a year on a number of strategic transactions that, “should they be consummated, would be to the benefit of our public shareholders.”

* **Read [analysis of Elan’s](http://www.businesspost.ie/#!story/Markets/Markets+News/Elan+makes+an+innovative+move+once+again/id/7a111563-ecf0-4a19-bdae-9490eb26e459) latest bid for reinvention**. *(subscription required)*

“Returning capital through share repurchase, diversifying business and asset risk/reward through non-traditional business structures while simultaneously capturing the long term high margin royalty income from Tysabri will offer a compelling investment thesis for our current shareholders.”

Elan said that it had noted the “heavily conditional nature of this indication of interest.”

Any credible proposal which may be made by Royalty Pharma or any other party will be considered by the company “alongside the strategic transactions and unique investment thesis” it had already laid out, it said.

Earlier, Royalty Pharma said it had not received a formal response from Elan and had been "unsuccessful in its efforts to engage with Elan" since making its proposal on February 20th.

"Royalty Pharma was...surprised by Elan's public announcement on Friday, February 22, 2013 discussing Elan's standalone strategy but not addressing the fact that Elan had received Royalty Pharma's proposal," the company said in a statement.

It believes there are "substantial" risks to Elan's plan to make acquisitions with the $3.25 billion it will receive from selling its stake in multiple sclerosis drug, Tysabri, to Biogen.

"While Elan's management has demonstrated its ability to execute several significant disposals...the current senior management team of Elan has not made any significant acquisitions or in-licensed any significant late-stage products for Elan and thus does not have a track record of generating attractive returns from acquisitions or in-licensed products," it said.

Royalty Pharma said its possible offer represented a cash premium of 12.6 per cent to the current enterprise value of Elan and a cash premium of 6.3 per cent to Elan's closing share price of $10.35 on February 15th.

Deutsche Bank said the bid for Elan was below its net present value of $12 for Elan and represented a premium of just four per cent to Friday's closing price.

ut Deutsche Bank analyst Richard Parkes said the offer was not "totally unreasonable" and shareholders must decide if they had faith in management's strategy to generate value or if they wanted cash now.

Royalty Pharma plans to finance the offer through a combination of cash and debt and is working with JP Morgan and Bank of America Merill Lynch on debt financing.

"The conservative investors will say let's tender the shares because of the uncertainty about what management will do with the cash," Olav Zillian, an analyst at Helvea SA in Geneva was reported as saying by Bloomberg.

"It's still open as to where the cash will be reinvested and shareholders possibly have no say in that."

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