Elan has 'poison pill' strategy to halt Pfizer bid
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Sunday January 11 2009
As speculation mounts that Pfizer is planning a €4bn bid for Irish drug company Elan, it has emerged that Kelly Martin's firm has implemented a 'poison pill' strategy to protect it against hostile takeovers.
Tysabri is the plum bauble in Elan's drug cabinet. Some analysts expect the controversial drug, which treats MS, to generate sales of more than $1bn per year soon.
As major drug companies struggle to maintain a strong pipeline of blockbuster products, Elan's Tysabri is viewed as being particularly attractive.
However, Elan, which is chaired by Davy Stockbrokers skipper Kyran McLaughlin, would be "messy" to take out.
It has emerged that Elan has protected itself from unwanted takeover by entering an arrangement whereby it may have to sell its share in Tysabri if it is taken over.
"Our collaborative agreement with Biogen provides Biogen with an option to buy the rights to Tysabri in the event we undergo a change of control which may limit our attractiveness to potential acquirors," according to Elan documents.
Elan is also protected from a takeover by Biogen itself, with the two companies agreeing a deal where Biogen cannot bid for Elan before 2010.
However, last year US investor Carl Icahn alleged that Elan had agreed not to change its Tysabri drug development partnership with Biogen, if the US company was taken over. Icahn also alleged that Elan had been approached for talks about the ownership of Tysabri by a company bidding for Biogen.
The $41bn pharmaceutical firm Wyeth is also prevented from taking over Elan "in some circumstances" under the terms of a development joint venture.
A takeover of Elan may also trigger certain debt covenants or indentures, forcing the new owners to repurchase the debt for cash.
Loss-making Elan is €1.15bn in debt. This is due to be repaid in 2011.
Shares in Elan rocketed 40 per cent last week as US investors ploughed into the company on suggestions that a big pharmaceutical company was about to pounce.
Pfizer has been widely linked as a potential predator, fuelled by chief executive Jeffrey Kindler's admission that it was to acquire a large rival drug company "to improve its financial health".
However this is widely thought to have been a reference to another pharma firm, Amgen.
Both Elan and Pfizer have declined to comment. However Goodbody analyst Ian Hunter suggested that Elan would be too small a target for Pfizer and that much of the share price rally may have been simply down to rumours of forecast-busting Tysabri sales.
Elan chief executive Kelly Martin would be the big winner out of any takeover.
The company amended his contract to entitle the former banker to three times his annual remuneration if the company was taken over.
This deal replaced a 2003 agreement which stipulated that Martin was entitled to just two-year pay in the event of a takeover.
Since taking over the helm of Elan, Martin has eschewed cash bonuses in favour of massive stock options grants.
Elan's latest annual report shows that Martin holds options over 3.85 million stock options, although some of these were granted at prices of nearly $14.
He was also granted $1m worth of options at prices up to $25 last year.
- Nick Webb
