NEW YORK-based investment firm Royalty Pharma has made a $6.6b (€5bn) approach to Irish drug maker Elan.
It is seeking to scupper the drugmaker's plan to spend most of the proceeds from a major drug sale on deals and instead give the money to shareholders.
Royalty Pharma, which buys royalty streams of patented drugs, said today it planned to offer $11 per share, a 4 percent premium to Elan's closing share price on Friday in New York, where the company has its primary listing.
Elan announced earlier this month it would raise more than $3.25 billion by selling its interests in its main drug, multiple sclerosis (MS) treatment Tysabri, to U.S. partner Biogen Idec and effectively reinvent itself by splashing most of the cash on acquisitions.
Royalty Pharma, however, said the risks associated with this plan were substantial, prompting it to offer Elan shareholders a "simple and clear choice" with a cash proposal it said represented the full value of the company today.
Elan shares in Dublin were up 8.9 percent at €8.68 euros ($11.42) by 1200 GMT. The firm, in which U.S. group Johnson & Johnson is an 18 percent shareholder, said it would not make a comment on Royalty Pharma's proposal for the time being.
Deutsche Bank analyst Richard Parkes said the small premium suggested by Royalty Pharma might deter Elan's shareholders.
"But it's not totally unreasonable," he added.
"I think investors are now faced with a straight question of whether you lock in the value at a small discount to asset value or you have faith that management can deliver on its planned strategy of acquiring assets."
Royalty Pharma said it had not received a formal response from Elan and had been unsuccessful in its efforts to engage with the company since making contact with it on Feb 18.
It added it was "surprised" by Elan's announcement on Friday that it planned to return $1 billion to shareholders by buying back some of its shares, because it did not address the proposed offer.
Following the agreement to sell Tysabri - which accounted for almost all of Elan's revenue - the Dublin-based company will still receive a royalty on its sales.
Elan said last month it had already spoken to several companies about potential deals and would look to move quickly over the next 12-18 months.
Royalty Pharma countered that good assets in the industry were in short supply and that Elan's senior management had little experience in making acquisitions.
It reserved the right to reduce its proposal, should Elan strike any deals or buy back shares.
Royalty Pharma, whose portfolio includes rheumatoid arthritis drugs Humira and Remicade, last year paid $761 million for a stake in Biogen's MS treatment Tecfidera.
Royalty Pharma said it planned to finance the possible offer through a combination of available cash and debt.
It said it was working with financial advisers led by J.P. Morgan and lenders led by BofA Merrill Lynch to put in place the necessary debt financing on the possible Offer.
There had been speculation in 2012 that Biogen might try to buy Elan outright, following the failure of the Irish company's Alzheimer's drug bapineuzumab, which it was working on with Johnson & Johnson and Pfizer.