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Royalty Pharma on Friday raised its hostile bid for Irish drug firm Elan
A majority of Elan shareholders have held off tendering their shares in hopes of a bigger pay day.
Royalty is now offering $13 cash per share, up from $12.50 previously, and added a contingent value right (CVR) clause that could mean an additional $2.50 per share if Elan's blockbuster multiple sclerosis drug Tysabri hits certain sales milestones.
Institutional investors collectively holding 5 to 10% of Elan told Reuters they would approve the new Royalty Pharma bid, but said they do not think this was the suitor's final offer.
"The best thing I like about this offer is that it doesn't say 'best and final,'" said one shareholder.
Elan's board said on Friday it would assess Royalty Pharma's offer "in line with its obligations under Irish takeover law," and advised shareholders to take no action on the bid in the meantime.
Royalty Pharma declined to comment on whether it was prepared to increase its bid again.
White Knight?
Elan institutional shareholders interviewed by Reuters, who asked to remain anonymous because they are not permitted to speak to the media, said they would approve the Royalty offer.
They said the one thing that could put Royalty's efforts in jeopardy would be if Elan were to find a rival bidder.
Ireland-based companies like Elan are often attractive takeover targets for companies based in the United States because they can offer the acquirer a lower tax rate. The corporate tax rate in Ireland is 12.5%, compared with 35% in the United States.
Royalty Pharma is already based in Ireland and thus would not gain any special tax benefit from buying Elan.
If Elan found another potential buyer that would gain tax benefits from acquiring Elan, that buyer might be willing to top Royalty Pharma's bid, the shareholders said.
But finding a buyer who would outbid Royalty might be challenging, according to industry bankers. Elan has no research facilities of its own and is essentially a cash stream, collecting royalties on drugs owned and sold by others.
"Some company might buy Elan as a means to an end, but in general, pharmaceutical companies do not buy royalty streams," said one of the bankers, who wished to remain anonymous because he is not permitted to speak to the media.
A Bitter Battle
The takeover battle between Elan and Royalty Pharma has been increasingly bitter, involving court hearings, injunctions and a war of words.
The saga began in February after Elan announced it had sold its 50% interest in multiple sclerosis drug Tysabri for $3.25 billion plus future royalty payments. Elan said it would return $1 billion to shareholders and make acquisitions with the rest of the $3.25 billion.
On February 26, Royalty Pharma made its first bid for Elan - $11 per share - saying Elan's management did not have the experience to be a standalone pharmaceutical company and make acquisitions on its own.
After pushback from Elan, Royalty Pharma sweetened its bid in April to $12 a share, or $7.3 billion.
In May, Elan went on a buying spree, striking three deals: $1 billion for 21% of the royalties of U.S. pharmaceutical company Theravance
Not to be deterred, Royalty Pharma on May 20 raised its takeover bid to $12.50 per share but threatened to withdraw the offer if Elan shareholders approved any of its planned acquisitions.
Elan shareholders are scheduled to vote on the deals, a share buyback and a drug spinoff on June 17.
Royalty has taken a series of lumps in the past week.
On Monday, Elan won a U.S District Court order stopping Royalty from closing its tender offer. The court will meet again June 11 to decide whether to grant a preliminary injunction against Royalty.
On Thursday, the Irish Takeover Panel ruled that if Elan shareholders backed the planned acquisitions and either the share buyback or the drug spin-off, Royalty Pharma would have to walk away.
Elan shareholders interviewed by Reuters believe there might be room for Royalty Pharma to raise its bid again by sweetening the terms of the CVR.
But if that doesn't happen, some are ready to take the current offer.
"This is a good deal," said one shareholder. "I am ready to accept it."
