Elan faces $7.3bn hostile bid from Royalty Pharma

Dominic Coyle

Irish biotech Elan was last night fighting a hostile takeover bid from US investment firm Royalty Pharma, which could value the companuy’s remaining busness at $7.3 billion.

Royalty Pharma yesterday announced it was making a cash offer for Elan of up to $12 (€9.16) per share, stepping up its efforts to take control of the Irish drugmaker.

Royalty had made an indicative approach worth $11 a share in February after Elan announced that it had sold its half share in Tysabri, the blockbuster treatment for multiple sclerosis which it had developed, to its partner Biogen for $3.2 billion in the latest of a series of divestments by the company over recent years.

As part of the deal, Elan retains royalties to the drug which are expected to delvier hundreeds of millions of dollars in income annually over coming years

Analysts last night suggested Elan would not have to open its books to Royalty, which has been seeking clarity on the scale of its cash reserves and to conduct what it expects to be a brief due diligence exercise.

Elan has consistently refused to engage with Royalty prior to the formal offer and last week secured overwhelming shareholder approval for a $1 billion share buyback in defiance of the initial Royalty approach.

That has not deterred the US suitor which specialises in managing the rights to drugs and has questioned the expertise of Elan’s current management in this field.

“We believe the vast majority of shareholders will look to sell at this price,” said Pablo Legorreta, chief execuitve of Royalty, who added that the figure was a substantial premium to the price paid by Biogen for its purchase of the Tysabri rights.

Mr Legorreta has also queried the prospects of Elan’s management delivering a plan that involves making a series of strategic acqusitions and investments with the money from the Biogen deal, noting that Elan has no track record in this area. “As of now, there are really no significant business operations in the company,” Mr Legorreta said.

In a statement last night, Elan said it noted the announcement .

“We have said consistently that we would give consideration to any formal proposal by any party for Elan. The board will, in line with its obligations under Irish takeover law, promptly assess the Royalty Pharma announcement and will advise its shareholders accordingly.”

The final value of the Royalty Pharma offer wil depend on the outcome of the dutch auction under which Elan is conducting its share buyback. It has asked shareholders to tender shares at a price somewhere between $11.25 and $13 a share. If the strike price is below $11.75 a share or above $12, the value of the Royalty Pharma deal will fall.

Royalty said it would finance the offer through existing resources and new credit facilities. Its advisers are JPMorgan, BofA Merrill Lynch and Groton Partners.

Elan’s shares were last night trading below the Royalty offer price, having slipped 1.6 per cent on the day.