Elan Board Unanimously Rejects $6.4 Billion Takeover Offer

Elan Corp.’s board of directors unanimously rejected a higher takeover offer from Royalty Pharma, an investor in royalty streams from pharmaceuticals, saying the proposal “substantially undervalues the company.”

Royalty raised its bid to $6.4 billion on May 20 from a previous bid of $5.7 billion. The all-cash offer is valued at $12.50 per American depositary receipt. The ADRs rose 2.7 percent to $12.36 at the close in New York.

“The revised offer from Royalty Pharma continues to grossly undervalue our company’s current business platform and our future prospects,” Elan Chairman Robert Ingram said today in a statement. “This offer is no more than an opportunistic attempt to acquire our company at a substantial discount.”

Pablo Legorreta, Royalty’s founder and a former Lazard banker, is pursuing the Dublin-based company after Elan Chief Executive Officer Kelly Martin, a former Merrill Lynch & Co. banker, initially offered to buy Royalty.

An acquisition by Royalty would enable Elan shareholders to avoid the risks of Martin’s strategy of reinvesting the $3.25 billion Elan received from Biogen Idec Inc. (BIIB) for divesting its stake in the multiple sclerosis drug Tysabri, Royalty said. Elan has said it will pay investors dividends directly linked to Tysabri sales as a 20 percent share of the royalty received from Biogen.

Shareholder Meeting

Elan this month announced a $1 billion investment in Theravance Inc. (THRX)’s royalties, a $340 million takeover of Vienna-based AOP Orphan Pharmaceuticals AG and the purchase of a 48 percent stake in Dubai-based NewBridge Pharmaceuticals for $40 million. The company also plans to issue $800 million in debt.

An extraordinary general meeting of shareholders will be held on June 17, when investors will vote on the proposed transactions, Elan said in the statement today.

Royalty Pharma’s takeover offer is contingent on Elan investors voting against the proposed deals, Royalty said this week.

“Accepting the Royalty Pharma Offer would eliminate -- forever -- the opportunity for Elan’s shareholders to participate in the future business and growth made possible by the reallocation of capital following the Tysabri transaction,” Ingram said in a letter to shareholders today.

‘Appropriate Balance’

A spokesman for New York-based Royalty had no immediate comment on Elan’s rejection of the higher bid. Earlier today, Legorreta said in a statement that Elan’s directors “have failed to maintain an appropriate balance between supporting management’s acquisition plan and their fiduciary responsibilities to Elan shareholders.”

Ingram challenged an assertion made by Royalty Pharma on May 20 that Elan’s board can’t recommend an offer at any price without breaching its agreement with Theravance.

“This is untrue,” he said. “The board is at all times willing to consider any reasonable and meaningful offer for the Company, be that from Royalty Pharma or any other person.”

JPMorgan Chase & Co., Bank of America Corp. and Groton Partners are advising Royalty Pharma. Elan’s financial advisers include Davy Corporate Finance, Morgan Stanley, Ondra Partners and Citigroup Inc.

Founded in 1996, Royalty Pharma owns royalty interests in 38 approved and marketed pharmaceutical products. In 2004, the firm bought Memorial Sloan-Kettering Cancer Center’s U.S. royalty interest in Amgen Inc.’s Neupogen drug.

To contact the reporter on this story: Makiko Kitamura in London at mkitamura1@bloomberg.net

To contact the editor responsible for this story: Kristen Hallam at khallam@bloomberg.net

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