Elan Board Rejects $6.7 Billion Royalty Pharma Offer

Elan Corp.’s board unanimously rejected Royalty Pharma’s raised $6.7 billion takeover offer and hired Citigroup Inc. to assess “several unsolicited corporate enquiries.”

Royalty Pharma, an investor in royalty streams from pharmaceuticals, last week raised its bid to buy Dublin-based Elan Corp. by 5 percent in the second increase in its attempt to take over the Irish biotechnology company.

The all-cash offer of $13 per American depositary receipt surpassed a previous bid of $12.50 and compares with the $13.44 closing price on June 7. The new proposal potentially values each Elan share at as much as $15.50 if multiple sclerosis drug Tysabri meets certain sales and development goals. If all three targets are met, Royalty would pay a contingent value right of $2.50 a share, for a total of $8 billion.

“Royalty Pharma’s revised offer continues to grossly undervalue Tysabri,” Elan’s board said in a statement. “The Elan board and executive management remain unanimous in recommending the four previously announced transactions.”

Elan shareholders will vote on the four deals, including a $1 billion investment in Theravance Inc.’s royalties, on June

17. The result will determine whether Dublin-based Royalty will proceed with its unsolicited offer.

Tysabri’s Performance

Elan, under Chief Executive Officer Kelly Martin, is also considering other offers, the board said today.

“Both the board and executive management are aligned in exploring all opportunities that maximize the full value of the company for its shareholders,” it said.

Interested parties could include companies looking to make royalties acquisitions or U.S.-based drugmakers aiming to leverage Elan’s Irish tax rate, said Richard Parkes, an analyst at Deutsche Bank in London.

“How firm or exploratory those indications of interest are is anybody’s guess,” he said. “In our view, it seems unlikely that there will be third parties that will offer anything meaningfully higher” than Royalty Pharma’s bid.

The contingent value rights are tied to events including regulatory approval for expanded use of Tysabri; the achievement of global sales of $2.6 billion in four consecutive quarters before the end of 2015; and the achievement of $3.1 billion in sales in four quarters by the end of 2017, Royalty Pharma said. The offer isn’t conditional on due diligence.

Avoid Risks

An acquisition by Royalty would enable Elan shareholders to avoid the risks of former Merrill Lynch & Co. banker Martin’s strategy of reinvesting the $3.25 billion Elan received from Biogen Idec Inc. for divesting its stake in 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 has undertaken what Royalty Pharma considers to be a frenetic jumble of value-destructive” transactions intended to deter the pursuit of Elan, Royalty Pharma has said.

In addition to the Theravance deal, Elan’s shareholders will vote on a $340 million takeover of Vienna-based AOP Orphan Pharmaceuticals AG, the spin-out of an experimental drug called ELND005 for Alzheimer’s disease to Speranza Therapeutics and $200 million in share buybacks.

Proxy Advisers

Royalty Pharma urged Elan shareholders to vote against all four proposals, citing recommendations from proxy advisers Institutional Shareholder Services and Glass Lewis.

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.

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.

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