Elan shares staged a tentative recovery in early trading on the Dublin, London and New York markets boosted by speculation that an attempt by the company to restore investor confidence was imminent. While Elan declined to confirm or deny any plans, the markets are speculating on a possible share buyback and a restructuring of the Elan board.
After a slide of almost 80 per cent since the start of the year, the shares gained 7.7 per cent to €11.25 in Dublin and 7.4 per cent to 700p in London in early trading following weekend reports of possible moves by the company. In New York, the shares opened at $10.50 after Friday's $9.90 close and moved up in early trading to touch $10.75. The shares closed up 94 cents at €11.39 in Dublin and 56p stronger at 708p in London after trading in a range of 662.50p to 721.50p.
Elan shares, which are still well off their 52-week high of $65 in New York, €50.27 in Dublin and 4635p in London, have fallen sharply following a profits warning in February, problems in its drugs testing programme, including its long-awaited Alzheimer's drug, and concerns about its accounting policies which have led to an investigation by the US Securities and Exchange Commission.
Last week, as the shares fell again, the company had to issue a statement announcing the date of its annual general meeting - July 31st - dismissing market comment that the meeting had been "put off" as "highly speculative". The 2001 meeting was held in May and the 2002 meeting had been delayed because of "the additional levels of review" required in preparing second-quarter results as the company faces litigation from investors, Elan said.
A buy-back of up to $500 million (€543 million) would represent up to 15 per cent of the current market capitalisation and may be a cheaper way to stockpile equity ahead of the potential $1 billion poison put in December 2003, according to Davy analyst Mr Jack Gorman. Convertible debt of about $1 billion maturing in December 2003 can be paid by Elan in shares or cash. If the company expects its share price to rise, it would make sense to buy them back at today's price and use them later to pay down the debt.
Pointing out that a buyback would increase earnings per share, the broker to the company said investors would look through this effect to focus operating earnings and cashflow on.
A buy-back and board changes may help a beleaguered share price in the short term, Mr Gorman said, adding that the longer-term impact would depend on the detail of the moves, particularly the perceived quality and experience of new appointments to the board and any executive management changes.
