€1.5bn ‘lost’ if Elan takeover fails

As much as $2bn (€1.5bn) could be wiped off Elan’s market value if its shareholders reject US firm, Royalty Pharma’s takeover advances next week, brokers have claimed.

Elan’s shareholders meet on Monday to vote on a number of transaction proposals recently announced by the firm — with approval for any of the six items enough to ruin Royalty’s bid.

The US intellectual property company recently upped its bid to $13 per share, plus an additional $2.50 per share based on specific sales targets for the MS drug, Tysabri in the next four years. This would see the Irish firm bought for a minimum of $6.7bn and a maximum of $8bn.

Elan has continuously rejected Royalty’s advances; saying earlier this week that the latest bid is “wholly inadequate”. Royalty has claimed that Elan’s planned transactions “lack financial justification” and were undertaken solely to fend off Royalty’s increased offer.

But neutral opposition to Elan’s position seems to be growing.

Data compiled by international news agency, Bloomberg shows a number of international analysts suggesting that the Irish biotech company’s value will suffer substantially if Royalty doesn’t take it over.

Amongst them, UBS estimated a 28% drop in Elan’s share price and a $2bn reduction in its market value if the takeover bid fails.

Bloomberg also quoted S&P’s Steven Silver as saying: “The acquisition is really supporting the stock price at this point. While Elan’s management continues to outright dismiss all of Royalty Pharma’s offers, I would think that the raised offer should entice some Elan shareholders. It’s a fair offer.”

Meanwhile, in a strongly worded letter to the Financial Times printed yesterday, former Elan board member, Jack Schuler agreed with Royalty’s theory regarding the latest Elan transactions, adding that they are “value destructive” and not in shareholders’ interests.

“The transactions were done in haste and I doubt whether there was much board analysis or consideration. In my view, Elan’s board and management has very limited experience in doing deals and, I believe, is not competent to run a business.”

Mr Schuler, who left the Elan board in 2010 after a high-profile feud, added: “I have no confidence that Kelly Martin [Elan’s chief executive] or the other Elan board members will act in the interests of shareholders. I hope that Elan shareholders realise that their only option is to sell the company to the highest bidder.”

Elan’s share price was down by over 3% yesterday, something explained by Royalty Pharma’s CEO, Pablo Legorreta as a sign that shareholders are worried that the US firm will have to lapse its offer.

Royalty is mounting a legal challenge to an Irish Takeover Panel decision stating that its bid will fail if any one of Elan’s proposals are approved by shareholders on Monday.

The company will today apply to the Commercial Court to allow its bid remain alive until the case is decided. The case could be heard next Wednesday.

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