Elan rejects Royalty Pharma's revised bid, weighing other interest

Elan announced Monday that after "careful review and consideration" its board of directors has rejected Royalty Pharma's revised offer to acquire the company for up to $15.50 per share, or a total of $8 billion. The drugmaker said that the gap between the underlying value of Elan and Royalty Pharma's bid "remains significant."

Royalty Pharma's offer includes $13.00 per share in cash and a contingent value right valued at $2.50 per share linked to Tysabri (natalizumab). Elan noted that the bid "continues to be wholly inadequate" and said that "shareholders are strongly advised to take no action in relation" to the offer. Elan previously rejected Royalty Pharma's earlier proposal to buy the company for $12.50 per share, or a total of $6.4 billion. A person close to the matter remarked that "if Royalty Pharma made a cash offer of $15.50 a share, Elan would seriously consider it," adding that the previous bids "have remained so far away from the company's long-term fair value that Elan has not yet discussed what the magic number would actually be."

Elan also disclosed that it has asked its advisors to assess all strategic interests in response to several "unsolicited corporate enquiries." The company said that "both the board and executive management are aligned in exploring all opportunities that maximise the full value of the company for its shareholders." A source with direct knowledge of the situation said the potential bidders "are not big pharma companies. It makes sense for US mid-cap listed companies with market cap either around $3 billion to $5 billion, or up to $20 billion." The source added that "these are companies with a pipeline of products which could therefore benefit from the tax break, as opposed to marketing-only companies to which the benefits would not apply."

Deutsche Bank analyst Richard Parkes suggested that interested parties may include companies looking to make royalties acquisitions or US-based drugmakers aiming to leverage Elan’s Irish tax rate. "How firm or exploratory those indications of interest are is anybody’s guess," Parkes commented, adding "in our view, it seems unlikely that there will be third parties that will offer anything meaningfully higher" than Royalty Pharma.

On Monday, Elan also urged shareholders to back its four previously announced transactions, including a $1-billion investment in royalties on four of Theravance's drugs partnered with GlaxoSmithKline, at a meeting on June 17. The outcome of the vote, which will also include Elan's deal to buy AOP Orphan Pharmaceuticals for $340 million, will determine whether Royalty Pharma will proceed with its offer.

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