Irish pharmaceutical company Elan has eased its medium-term debt obligations after successfully placing 35 million shares and $460 million (€395 million) in convertible bonds within 48 hours.
Markets responded positively last night as the company placed the shares at $4.95, a figure that had been at the upper end of forecasts. It represents a discount of just over 11 per cent on the price at the time the fundraising was announced and will result in a dilution of existing holdings of 10 per cent.
The $460 million bond placing also represents a vote of confidence in the company, although some analysts questioned how much would end up in the hands of hedge funds.
The company, run by Mr Kelly Martin, had initially intended to place $250 million in bonds. As demand surged, this was raised to $400 million. A further $60 million allocated to cover over-allotments was also exercised.
"That demand was so strong indicates that convertible bonds could remain a significant funding channel for Elan in the future," company broker Davy said.
The bonds were issued with a 6.5 per cent coupon, which will be paid every six months in arrears. They will be convertible into more than 62 million Elan shares in five years at a set price of $7.42.
The funding has raised €633.25 million gross and, according to Goodbody analyst Mr Ian Hunter, will be enough to finance not only the purchase of the Liquid Yield Option Notes (LYONs) that the company has said it will redeem this year but also meet subordinate debt held by EPIL bondholders that falls due next year and in 2005.
"Of course, it stacks the debt up in 2008 but if the company is going to survive it will have seen the Antegren or its Alzheimer's drug coming through by that time," according to Mr Hunter.
Dolmen Securities analyst Mr Stuart Draper said the offering "has once and for all resolved the issue [of liquidity\], leaving only the SEC investigation remaining to be resolved before investors can go back to focusing on Elan's major \ pipeline upside".
The Securities & Exchange Commission (SEC) has been investigating Elan for some time. The company expects the investigation to wind up at the end of this year with a final pronouncement due by the end of the first quarter of 2004.
A spokeswoman for Elan acknowledged that the successful offering would allow the company a lot more flexibility in the future.
Explaining the decision to restrict the offering to non-US citizens resident outside the United States, she said that was "just the way the deal was structured from a business point of view".
However, analysts questioned whether an offering within the US would have proved more difficult for the company as it would have required the filing of a statement with the SEC that would include historic figures. These figures are themselves the subject of the ongoing SEC investigation.
With the company looking to raise funds quickly to address the LYONs issue, which it had committed to announcing by mid-November, any delay would have been awkward.
