The sale of Elan to Perrigo marks the end of a rollercoaster ride for the Irish drugmaker, which has fended off three takeover bids by private equity firm Royalty Pharma in recent months.
For Elan and its chief executive, Kelly Martin, the deal vindicates the rejection of Royalty's advances as consistently undervaluing the company.
Perrigo will pay Elan shareholders $16.50 in cash and stock, a dollar more than the conditional €15.50 Royalty offered if Tysabri met certain sales and development goals.
The deal, if approved by regulators, will bring an end to months of uncertainty for Elan, which has been one of the great boom-bust-and-recovery stories of Ireland.
Shares soared in the company in the late 1990s as it positioned itself as a pioneer of biotechnology and a leader in efforts to find a cure for Alzheimer's. By 2001 it had become the largest constituent on the Irish Stock Exchange, with a valuation in excess of €20 billion.
Things started to go awry the following year when a clinical trial for an Alzheimer's drug on which Elan and the market had pinned great hopes was halted after several patients suffered inflammation in the brain. Within weeks the shares dropped by a third. The Wall Street Journal subsequently published an extensive piece raising questions about Elan's accounting practices.
Overnight, the value of Elan stock more than halved to $14.85 and six months later, the shares were trading at just $2.
Focus on Tysabri
Former Merrill Lynch banker Kelly Martin took the helm in 2003, drastically paring down the company and opting to focus on the development of multiple sclerosis drug Tysabri.
It was the sale of ownership in this drug, to Biogen Idec last February, that triggered a scramble among several US-based companies to acquire Elan for its healthy cash flow and Irish tax base.
Elan rejected three hostile bids from Royalty Pharma before putting itself up for sale last month. Royalty was ultimately batted off when Elan shareholders backed a buyback proposal, triggering an automatic withdrawal of the bid.
The final bid from Royalty Pharma was for $13 a share in cash and a further contingent value right that could have added a further $2.50 per share if Elan’s Tysabri drug hit certain sales milestones. This bid was significantly lower than the $8.6 billion or $16.50 per share offered by Perrigo.
The deal also marks a new beginning for Perrigo, which will be able to domicile itself in Ireland, cutting its tax liabilities nearly in half.
Perrigo's chairman and chief executive Joseph Papa said the acquisition would lower the company's effective tax rate from about 30 per cent to the "high teens".
Perrigo develops and makes prescription pharmaceuticals, cough and cold remedies, dietary supplements, infant formulas and nutritional drinks.
The Michigan-based company said the acquisition was expected to result in more than $150 million of recurring after-tax annual operating expense and tax savings.
"Tax savings are expected to arise from the combined company being incorporated in Ireland with organisational, operations and capitalisation structures that will enable the combined company to more efficiently manage its global cash and treasury operations," Perrigo said in a statement.
Additional reporting: Reuters
