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Perrigo to Buy Elan for $8.6B Cash, Stock

By Cormac Sheridan
Staff Writer

DUBLIN, Ireland – With a $16.50 per share cash-and-stock offer, Perrigo Co. is the latest contender to offer a bid for Elan Corp. plc.

The offer, which values Dublin-based Elan at $8.6 billion, comprises around $3.26 billion or $6.25 per share in cash plus 0.07636 shares of Perrigo, valued at $10.25. Net of Elan's $1.9 billion in cash, the deal values Elan at $6.7 billion.

The crucial difference between Perrigo's offer and the rejected $13 per share cash offer, plus $2.50 per share in 'contingent value rights', from New York-based Royalty Pharma LLC, is that it has the unanimous backing of Dublin-based Elan's board. Assuming Perrigo's stock does not dip substantially on the news, the offer price gets Elan's management above the $15.50-per-share threshold it determined as being the minimum of the company's fair value.

If they vote in favor of the transaction, Elan shareholders would hold approximately 29 percent of the enlarged company's stock, while shareholders in Allegan, Mich.-based Perrigo would hold the remainder.

The deal requires acceptances from 75 percent of Elan's stockholders, however, and the big question is whether they would be willing to embrace ownership of a company that majors in OTC drugs, generic pharmaceuticals and infant formula.

Elan shareholders have already demonstrated a fractious streak in voting down a series of defensive acquisitions and asset disposals proposed by Elan's management in response to Royalty Pharma's hostile bid for the company. (See BioWorld Today, June 18, 2013.)

Elan shareholders would, in effect, be helping to finance the transaction, as the company's $1.9 billion in cash would be used to pay off in part a $4.35 billion bridge financing Perrigo has obtained to help it to fund the transaction. Perrigo already has $1.3 billion in long-term debt on its balance sheet.

In its favor, the company is performing strongly. It reported net income of $401.6 million on revenues of $3.2 billion – an increase of 15 percent – for the fiscal year that ended on June 30, 2012. For the quarter ended May 30, revenues rose 18 percent to $919.8 million, while net income reached $112 million. Its share price has also performed well. It reached  a 52-week high of $134.31 during trading Friday, before ending the day on $134.23, which is the price used to calculate the  share-exchange ratio.

The deal would give Perrigo ownership of Elan's royalty position in the multiple sclerosis drug Tysabri (natalizumab), as well as ELND005 (scyllo-inositol), a drug undergoing Phase II trials in bipolar depression and for treating aggression or agitation in patients with Alzheimer's disease.

Despite the lack of any substantial overlaps between the two companies, the deal is expected to yield $150 million in annual tax savings. What the companies are calling 'New Perrigo' would follow the now well-worn path of relocating its headquarters to Ireland to avail of the country's 12.5 percent corporate tax rate.

Deutsche Bank analysts Richard Parkes and Tom Race said they expected the deal to be accepted. "The proposed offer is a significant premium to our $12 per share [net present value estimate] of Elan's assets – Tysabri plus cash, reflecting strategic value attributed Elan's to low tax infrastructure and the potential for Perrigo to lower its current and future tax obligations," they wrote in a research note. "Importantly, the deal is a 27 percent premium to the last offer from Royalty Pharma (excluding value for the CVR) and a 21 percent premium to our valuation of Royalty’s last offer."

Berenberg analysts, who valued Elan at $14 per share, also recommend accepting the offer, particularly as Tysabri underperformed the bank's own estimates during the second quarter. "We think Elan has uncovered an excellent offer for its shareholders, substantially ahead of the level Royalty Pharma could achieve. We expect shareholders to accept this offer," they wrote.

See Tuesday's BioWorld Today for More on This Story.