Business Irish

Monday 11 December 2017

Royalty comes out shooting in $6.6bn Elan takeover battle

John Mulligan

John Mulligan

US firm Royalty Pharma made an initial approach to buy or merge with Irish drug group Elan last summer, its chief executive has revealed.

Speaking to the Irish Independent, Royalty Pharma boss Pablo Legorreta has also suggested that the prospects of Elan being able to launch its $1bn (€770m) share buyback scheme or make a material acquisition without shareholder approval are in question due to Royalty's bid. The US company made a $6.6bn (€5bn) indicative offer last week.

It also raises the spectre of possible legal proceedings if the companies sharply differ on the definition of what a material acquisition constitutes.

Elan announced plans to return the cash to shareholders once it closes its $3.25bn deal to sell its 50pc stake in multiple sclerosis treatment Tysabri to US-based Biogen Idec, which already owns half the drug. Elan said this week that it would also start paying its shareholders a twice-yearly dividend using royalties it will continue to receive from Tysabri sales.

But Royalty Pharma came out shooting yesterday in a skirmish that has all the hallmarks of turning into a pitched takeover battle.

Mr Legorreta said he and his team were meeting two major shareholders yesterday and would meet another 10 or so today. The meetings are taking place in cities including Boston, New York and Baltimore. The team may also travel to Europe next week to court investors.

Drug firm Johnson & Johnson owns 18pc of Elan, while Fidelity Management & Research owns just under 14pc.

Invesco Asset Management controls 8.7pc.

Response

Mr Legorreta declined to say what the investor response has been to date.

"They want to meet, so that's something," he said.

"We're really trying to present an alternative."

Elan plans to return the $1bn to shareholders and use the rest of the Tysabri proceeds to make strategic investments and acquisitions. Royalty Pharma doesn't think

Elan management have the necessary track record to do that and has offered $11 per Elan share to buy the group.

Shares were trading at $11.81 in New York yesterday.

Mr Legorreta is hoping shareholders will pressurise Elan to open its books to Royalty Pharma, which says it could complete due diligence within 20 days.

"It's probably in everybody's interest to allow us to do due diligence," said Mr Legorreta.

"It should be a very simple due diligence exercise due to the simplicity of the company today."

The sale of Tysabri effectively leaves Elan as a cash-rich shell. An acquisition of Elan would be by far Royalty Pharma's biggest-ever deal.

Elan said again yesterday that Royalty's indicative offer was "highly opportunistic".

During discussions with Elan chairman Bob Ingram last summer and autumn, Mr Legorreta said that while Royalty Pharma expressed an interest in doing a deal with Elan, no price was put on the table.

Those discussions were said to have been complicated by Tysabri's ownership structure. Both Elan and Biogen-Idec each had first dibs on each other's stakes in the event either firm was acquired.

Mr Legorreta said he wanted to have discussions with Elan's independent directors, who include Kieran McGowan. He said Mr Ingram has been "constructive and receptive" in past meetings.

Irish Independent

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