Fidelity Investments is among money managers that have cut their stakes in Elan Corp. (ELN) shares in recent weeks in a sign the firms are content with Royalty Pharma’s $6.4 billion hostile takeover offer for Elan, according to Royalty Pharma’s chief executive officer.
Fidelity Investments sold about a third of its holding while Wellington Management Co. also trimmed its investment, Royalty Pharma Chief Executive Officer Pablo Legorreta said in a May 28 interview in London. Legorreta is meeting with investors this week including Invesco Ltd. (IVZ) and Franklin Templeton to urge them to back New York-based Royalty Pharma’s bid.
The share sales show some investors don’t see Dublin-based Elan’s recent transactions as adding value, Royalty Pharma executives said. The firm raised its bid to $12.50 per American depositary receipt on May 20 from $11 in February, and the ADRs rose 0.12 percent to $12.43 at 1:12 p.m. in New York. The takeover challenges Elan’s strategy of embarking on a series of proposed acquisitions announced this month.
“Investors welcomed our offer,” said Legorreta, a former Lazard Ltd. (LAZ) banker who founded Royalty Pharma in 1996. “They were asking for more money. We were at $11 at the time. Our sense at the time was that a number like $12 to $13 would do it and we felt that that sort of value range worked for us.”
Elan investors have expressed differing views on the value of a proposed $1 billion investment in Theravance Inc.’s royalties, Elan Chairman Robert Ingram said at a media briefing today following the company’s annual meeting in Dublin.
“We take nothing for granted,” Ingram said when asked whether there’s concern a June 17 shareholder vote on the deal will be unfavorable. “To the degree that there is that uncertainty, we will work very diligently with those shareholders to try and answer those questions.”
Fidelity, the second-largest U.S. mutual fund company, holds about 39.5 million Elan shares, according to a regulatory filing yesterday. That’s down from about 61 million shares on Feb. 25, the day Royalty first made public its interest in buying Elan.
The firm sold at an average price of $11.50 per ADR, George Lloyd, executive vice president for investments at Royalty, said in an interview. Vincent Loporchio, a spokesman for Boston-based Fidelity, declined to comment.
Wellington, the Boston-based manager of the $27.6 billion Vanguard Health Care Fund (VGHCX), pared its holding to 38.9 million shares from 46.9 million on Feb. 27, filings show. BlackRock Inc. (BLK), the world’s biggest asset manager, sold 2.2 million shares between April 24 and May 28 and now holds 16.4 million shares, according to regulatory filings.
They join Johnson & Johnson, which sold 82 million shares, or 76 percent of its stake, on April 18 at $11.25. The company still owns 25 million shares, equivalent to a 5 percent ownership position, said Ernie Knewitz, a spokesman for New Brunswick, New Jersey-based J&J.
As institutions sell down their stakes, merger-arbitrage traders have bought in, now possibly making up as much as 20 percent of positions, Lloyd said. Arbitragers buy shares of takeover targets when a deal is announced in hopes of selling at a profit as the deal closes.
Elan this month announced a $1 billion investment in royalties on Theravance Inc. (THRX) drugs, 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.
Shareholders will vote on the proposed transactions at a special meeting June 17. Royalty Pharma’s takeover offer is contingent on Elan investors voting against the Theravance deal, Lloyd said.
“If they vote in favor of that transaction, and that transaction closes, then we’re gone,” Lloyd said in an interview. “There’s hundreds of millions of dollars of value destruction in that deal.”
Elan received $3.25 billion from Biogen Idec Inc. (BIIB) for divesting its stake in the multiple sclerosis drug Tysabri. Elan will continue to receive royalties for as long as the medicine is sold. Royalty Pharma invests in royalty streams from pharmaceuticals.
Elan’s board “has determined that the Royalty Pharma revised offer substantially undervalues the company,” Chairman Robert Ingram said in circular to shareholders on May 26. “We take our fiduciary responsibilities to shareholders very seriously, and urge you to reject the Royalty Pharma offer.”
The Tysabri royalties plus Elan’s cash are worth as much as $20.80 a share, Elan said in a statement late yesterday.
Spokespeople for Wellington, BlackRock, Invesco and Franklin Templeton declined to comment.
Royalty and Elan haven’t negotiated, said Lloyd.
“They’ve never returned our calls,” he said. “We’ve called and sent emails. They’ve never returned our calls, even at $12.50 a share.”
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