Elan, the troubled pharmaceutical group, is refusing to release its 3 per cent stake in Galen, despite a formal approach from the Northern-Irish company to buy back the shares.
An Elan spokesman said last night that it was not in a position to sell its €47 million holding in Galen because the shares in question were held in a securitised vehicle and were being used to support debt obligations due for repayment in three years' time.
Under the rules surrounding the securitised vehicle, which is set up on an "auto-pilot" basis, the Galen shares cannot be sold before March 2005.
Galen chairman Dr John King declined to comment in detail on Galen's efforts to buy back the shares held by Elan, saying simply that his company would be ready to purchase shares if they became available around current levels.
Elan is engaged in intensive efforts to raise $1.5 billion (€1.53 billion) needed to meet liabilities due before the end of next year. The company commenced an asset-disposal programme last week.
Dr King said that Galen was a growth stock that was not usually focused on share buy-backs. He added however that the company's share performance over recent months had created conditions where such a move could be beneficial.
Galen's shares fell to four-and- a-half-year lows last month after a major clinical study highlighted a possible link between a Wyeth-made hormone replacement treatment and serious illness in women. The shares have since regained much of their lost ground but remain in the value arena.
"In recent times, the share price has dropped to a level where we would consider that a buyback would deliver shareholder value," said Dr King.
Galen announced earlier this month that it was seeking shareholder permission to raise the number of shares it could repurchase and cancel from 5 per cent to 15 per cent.
The move, which came as a reaction to weakness in the company's share price, has left the Northern-Irish company in a position to buy back the seven million shares held by Elan.
Galen said at that time it had contacted Elan with a view to buying the shares but was awaiting a definitive response on the issue.
Meanwhile, shares in Elan gained 15 cents in Dublin yesterday, closing at €3.60.
Rumours continue to circulate about a potential takeover at the company by US drugs giant Bristol-Myers Squibb but most analysts have declined to place any credence in the reports.
Mr Max Hermann, analyst with ING Barings in London, said that a takeover was highly unlikely until US regulator the Securities and Exchange Commission had completed its investigations into the company.
Mr Hermann attributed recent volatility in the stock, both in Dublin and in New York, where it is mainly traded, to traders taking and closing short positions.
"There's a lot of hedging activity going on," he said, predicting little change until the company's affairs were rendered completely transparent.
