Saturday 24 March 2018

Elan considered buying Royalty before becoming its $5.7bn target

Elan CEO Kelly Martin
Elan CEO Kelly Martin

By Padraic Halpin

ELAN considered buying U.S. investment firm Royalty Pharma last year, six months before Royalty made its approach for the Irish drugmaker, the offer document for the bid showed today.

Royalty submitted its $5.7 billion bid today, standing by a reduced price in the face of Elan's insistence it is worth more. Elan rejected the $11.25 per share bid last month and is determined to keep its independence.


Shareholders, most of whom the Dublin-based company claim had no interest in Royalty's original proposal, have until May 31 to make up their minds.


As the pair's takeover saga rumbles on, paperwork now shows that the two companies, who have not spoken since Royalty's first approach in February, last year discussed ways to work together. One suggestion was for Elan to buy Royalty to facilitate its aim then of becoming a public company.


Elan chief executive Kelly Martin initiated the talks last August, the document said, and top executives from both companies met once a month until December. By then Royalty was less interested in going public and instead wished to buy Elan.


Elan indicated at that point that it was focused on doing deals of its own and the document states that none of its executives have replied to phone calls or emails from Royalty chief executive Pablo Legorreta since he informed them of its intended offer on Feb. 18.


Royalty, attracted by the promise of lucrative revenues from Elan's multiple sclerosis drug Tysabri, first approached a week later. Elan fought back via manoeuvres designed to frustrate the bid, which is contingent on 90 percent acceptances.


In February, Elan sold its 50 percent interest in the blockbuster MS drug to U.S. partner Biogen Idec for $3.25 billion plus royalty rights of up to 25 percent. It will hand over a fifth of that royalty stream to shareholders.


Royalty said on Thursday it believed its offer put an implied value of $3.9 billion on Tysabri, a price shareholders should welcome, but added it was not prepared to pay over the odds to add the drug to its stable of royalty streams.


"Royalty Pharma takes note of recent multiple sclerosis market trends, specifically slowing net patient additions for Tysabri reported by Biogen for Q1 (2013) ... and the strong initial launch of (MS pill) Tecfidera," Pablo Legorreta said the document.


"Although Royalty Pharma continues to be interested in acquiring Elan, Royalty Pharma is a disciplined financial buyer and is only prepared to offer a price for Elan that reflects the fundamental value of the Tysabri royalty."


Last month Royalty lowered its bid to $11.25 a share from an earlier $12, pricing in the result of a $1 billion share buyback by Elan.


Legorreta said the buyback was an attempt to frustrate Royalty's offer and warned shareholders that the alternative they faced was to accept the risks of Elan management's acquisition strategy.


Some analysts have questioned Elan's lack of experience in pulling off major acquisitions as the company tees up a number of deals to reshape its business. Others believe Royalty needs to come back with improved terms to tempt shareholders.


Shares in Elan were 0.3 percent lower at $11.56 by 1610 GMT in New York.


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