Investment firm may have lost €650m on Elan shares

One of the world's largest investment management firms has suffered a potential loss of up to €650 million (£512 million) on trading in Elan shares in recent weeks.

The Capital Group of Companies, which has its headquarters in San Francisco, invests money on behalf of institutional clients, including pension funds. It has both US and non-US clients.

The group bought just more than 6 per cent of Elan - 20.5 million shares - between November 12th, 2001, and January 31st, 2002.

A fall in the pharmaceutical company's share price began after an article critical of the company appeared in the Wall Street Journal on January 30th.

The release by Elan last Monday of poor growth forecasts for 2002 led to a share price collapse, with the shares losing 40 per cent of their value on that day and a further 28 per cent on Tuesday.

It is not clear when exactly Capital Group bought the shares, which are likely to have been bought in batches between November 12th, 2001, and January 31st, 2002. On November 12th, 2001, Capital Group announced it owned 7.1 per cent of Elan. On that date the share price closed at €47.72.

This week the stock exchange was informed that as of January 31st, 2002, Capital held 13.2 per cent of Elan's shares. The Elan share price closed yesterday at €16.

During the period between the notices to the exchange the Elan price held up, before beginning to fall on January 30th.

A spokesman for the Capital group said it did not comment on its shareholdings other than by way of regulatory notices. He confirmed notices had been issued in November and January in relation to Elan.

Elan, which has its headquarters in Dublin and employs more than 800 in Athlone, Co Westmeath, is now the subject of a number of class actions in the US, taken on behalf of shareholders. They have cited the Wall Street Journal article.

In the article, former Securities and Exchange Commission chief accountant Mr Lynn Turner describes some of the firm's accounting practices as a charade. The accusation proved highly damaging in the US, where Elan trades on the New York Stock Exchange and where investors are particularly wary of possibly dubious accounting practices given the Enron debacle.

There has been some speculation that the company may now be the target of a takeover.

One possible purchaser, Shire Pharmaceutical, had been seen as a possible takeover target of Elan's before its current difficulties.

A number of Elan directors bought shares on Tuesday, at a price of €15.2. Mr Garo Armen bought 100,000 shares, Mr John Groom bought 60,000, Mr Brendan Boushel bought 35,000, Mr Dan Tully bought 25,000 and Mr Kieran McGowan bought 1,000.