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US drugmaker Perrigo agreed to buy Elan for $8.6 billion in a deal that will hand it tax savings from being domiciled in Ireland and royalties from a blockbuster multiple sclerosis treatment.
The deal, agreed on Monday, ends a bitter takeover battle in which Elan rejected three lower bids from US investment firm Royalty Pharma amid injunctions, court hearings and a war of words before putting itself up for sale last month.
Michigan-based Perrigo, which makes over-the-counter pharmaceuticals for the in-store brand market and has a market value of some $12 billion, will pay $6.25 per share in cash plus $10.25 per share in stock, a premium of about 10.5 per cent over Elan's closing price on Friday.
Elan shares rose 3.8 per cent on Monday to $15.5, close to a bid that analysts expect will be snapped up by shareholders who rejected Royalty's successive overtures. Perrigo shares dropped 6.7 per cent to $125.3
"Elan has uncovered an excellent offer for its shareholders, substantially ahead of the level Royalty Pharma could achieve," Berenberg Biotech analysts said in a note to clients.
For Elan and Chief Executive Kelly Martin, who took over the firm in 2003 when its share price had sunk to $2, the Perrigo deal is vindication for rejecting Royalty's advances. Martin, a low-key former Merrill Lynch banker, took a series of verbal attacks in a four-month saga that frequently turned ugly.
In an open letter to the Elan board last month, Royalty predicted that Elan was embarking on a lengthy and likely fruitless effort to find a buyer willing to better its offer.
Royalty's final bid was $13 in cash per share as well as a "contingent value right" that could have added a further $2.50 per share if Elan's blockbuster multiple sclerosis drug Tysabri hit certain sales milestones.
According to Deutsche Bank analysts, Perrigo's offer is a significant premium to their $12 per share valuation of Elan, reflecting the tax advantage, and worth about a fifth more than their calculation of the Royalty bid.
Reuters reported exclusively last week that Perrigo and New York-based Forest Laboratories Inc were preparing to bid. Elan is especially appealing for companies like Perrigo that can easily move their headquarters abroad because of the very low 12.5 per cent corporate tax rate in Ireland, compared with 35 per cent in the US. Fellow generic drugmaker Actavis' $5-billion acquisition of Dublin-based Warner Chilcott in May allowed it lower its tax rate to 17 per cent from 28 per cent. Hundreds of US companies have subsidiaries in Ireland for the same purpose.
That practice prompted international criticism after the US Senate revealed that technology giant Apple paid little or no tax on tens of billions of dollars in profits channelled through the country.
The Elan deal buys Perrigo a full tax domicile in Ireland, bringing the bulk of its income under the Irish tax regime. It will use $4.35 billion in bridge financing from Barclays and HSBC plus cash to fund the deal, which also brings it Elan's $1.9-billion cash pile.
