Royalty Pharma Raises Elan Bid to $12.50 a Share in Cash

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Royalty Pharma, an investor in royalty streams from pharmaceuticals, raised its offer to buy Elan Corp. by 12 percent to $6.4 billion after the Irish drugmaker made acquisitions to boost revenue and resist the bid.

The all-cash offer of $12.50 per American depositary receipt is higher than a previous bid of $11.25 per ADR and compares with the $11.67 closing price on May 17.

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. Elan’s board, which unanimously rejected New York-based Royalty’s previous takeover bid on April 22, will assess today’s announcement and advise shareholders, the company said today in a statement.

“In the meantime, Elan shareholders are strongly advised to take no action in relation to the Royalty Pharma offer,” the company said.

Elan rose 3.2 percent to $12.04 at the close in New York. The company said today it plans to buy back $200 million in shares, with details to be announced. Elan last month bought back $1 billion in stock, reducing the number of shares outstanding to about 510 million.

Martin’s Strategy

An acquisition by Royalty would allow Elan shareholders to avoid the risks of Martin’s strategy of reinvesting the $3.25 billion Elan received from Biogen Idec Inc. 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.

Elan this month announced a $1 billion investment in Theravance Inc.’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.

Elan has “dramatically overpaid” in the Theravance deal by agreeing to spend $1 billion on 21 percent of a portion of royalties when all of South San Francisco, California-based Theravance was trading at $3.5 billion, Royalty said in a statement. Today’s increased offer is contingent on Elan investors voting against the Theravance transaction and all deals announced today that are put to a vote, Royalty said.

Hasty Deal

“The Theravance transaction public disclosure suggests that the transaction was pursued in haste and without critical confidential information which could significantly impair the value of the asset,” Royalty said. “Royalty Pharma expects that the same may be true of the transactions announced today.”

In addition, Elan’s board can’t recommend Royalty Pharma’s offer at any price without breaching its agreement with Theravance, thereby compromising its ability to freely advise its shareholders and making itself “irrelevant” to them, Royalty said.

Royalty’s offer is “fully financed, cash confirmed and not conditional on due diligence,” the company said. Royalty also said it reserved the right to waive down the acceptance threshold for the increased offer from 90 percent to 50 percent plus one Elan share.

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. For example, in 2004, the firm bought Memorial Sloan-Kettering Cancer Center’s U.S. royalty interest in Amgen Inc.’s Neupogen drug.