Elan battle intensifies as Royalty Pharma raises offer by 5 per cent

The bitter battle for Elan intensified yesterday after private equity group Royalty Pharma raised its all-cash offer for the Irish-based speciality drug company by 5 per cent to $6.7 billion.

The new offer values each Elan share at $13 in cash, and includes a contingent value right worth up to $2.50 per share.

Royalty said the offer was not conditional on due diligence and only needed acceptances from 50 per cent of Elan shareholders to succeed.

Elan shares rose 5.3 per cent to $13.16 yesterday.

Royalty increased its offer after its earlier bid was accepted by only 7.7 per cent of Elan’s shareholders. That offer valued Elan’s shares at $12.50 each.

Elan formally rejected that offer as “grossly inadequate” and instead outlined a series of alternative deals for shareholders, using cash generated from the sale of Tysabri, its multiple sclerosis product, to issue new debt.

Elan and Royalty Pharma have dismissed each others' valuations of future sales of Tysabri, Elan's multiple sclerosis drug sold to its partner Biogen Idec this year in a deal that freed cash and set Elan on an acquisition trail for new investments.

Royalty's use of a contingent value right – a growing trend in conditional payments employed by others including Sanofi in its takeover of Genzyme – allows it to pay more based on the scale of future Tysabri sales.

In a research note Deutsche Bank estimated the contingent value right to be worth 30 US cents a share, and called the improved Royalty offer "compelling", valuing Elan well above its estimated net present value of $12.10 a share.

Waive shares
Elan sued Royalty in the Manhattan District Court on Monday seeking to block what it described as a "coercive" tender offer that gave shareholders until June 6th to determine whether or not to waive their shares.

In the complaint Elan alleged that Royalty has made “material misrepresentations” in its revised tender offer, saying this could leave nearly half of Elan’s shareholders as minority holders in a company controlled by Royalty Pharma but with no clear idea of what the US firm’s plans were.

The US courts have issued a temporary restraining order blocking Royalty and related parties from “consummating or closing defendants’ tender offer” for the outstanding shares of Elan.

A hearing has been scheduled for June 11th to consider whether to issue a preliminary injunction. – Copyright The Financial Times Limited 2013