* Mylan, Allergan, Endo, Forest considering bids-sources
* Partnership with Royalty is possible, but complex
By Jessica Toonkel
NEW YORK, June 27 The game may not yet be over
for U.S investment firm Royalty Pharma in its months-long
pursuit of Elan Corp.
The Irish drugmaker earlier this month rejected a hostile
bid by Royalty worth up to $8 billion. Instead, it put itself up
for sale and is in early discussions with several mid-size
drugmakers to find a rival buyer..
Mylan Inc, Allergan Inc, Endo Health
Solutions Inc and Forest Laboratories Inc are
among pharmaceutical companies that have shown preliminary
interest in bidding for Elan, according to several people
familiar with the matter who wished to remain anonymous because
they are not permitted to speak to the media.
While all the companies are primarily interested in Elan
for the tax savings that come from being domiciled in Ireland,
Elan's lack of drug pipeline and high price tag make it a long
shot that any bid will materialize, the sources cautioned.
If no rival offer emerges, Elan's stock could fall back to
where it was before Royalty made its first offer in February.
Elan's shares in New York, which traded slightly above
$10 per share right before Royalty's offer, have risen to around
$14 a share on expectations of a takeover.
Royalty, which is not currently participating in the sale
process but is nevertheless watching the situation closely,
could then get a second shot at buying the company.
Representatives from Allergan, Mylan, Forest and Endo
declined to comment. Royalty and Elan declined to comment.
When Elan announced on June 14 it was putting itself up for
sale, it invited Royalty to participate in the bidding.
Under Irish takeover laws, Royalty is not allowed to submit
another hostile bid for Elan for the next 12 months. The only
way it can buy Elan is by entering the sales process or if
another bidder approaches it about a partnership. So far Royalty
Pharma has not agreed to enter the bidding, two sources familiar
with Royalty said.
Some Elan shareholders have raised the possibility that a
partnership between Royalty Pharma and another bidder could be a
good option, albeit a complicated one.
They suggest that one of the industry buyers could acquire
Elan and sell a portion of the royalties on the drugmaker's
multiple sclerosis drug Tysabri to Royalty Pharma.
With such a deal, Royalty would get what it has wanted all
along - the Tysabri royalties. The industry buyer would get a
lower tax rate, and Elan would get a better price for the
No such discussions have taken place, although Royalty
Pharma would be open to a partnership, the sources familiar with
the firm said.
"The story is how is Royalty going to play its poker hand,"
said one industry banker who is not involved in the situation
and wished to remain anonymous because he is not permitted to
speak to the media. "Do they wait till the very end and put all
their chips on the table? Or do they do it earlier?"
Structuring a partnership whereby Royalty would receive a
portion of the Tysabri royalties and a separate bidder would get
the tax break would be tough to do.
First, under the terms of the sales process, Elan is
precluding any bidders from partnering up, meaning that a
bidder that wanted to team up with Royalty Pharma would need to
renegotiate that restriction with Elan, according to one of the
sources with knowledge of the matter.
Regulators have also set up rules to prevent companies from
making acquisitions just to lower their tax rates. For the
acquirer to take advantage of the 12.5 percent corporate tax
rate in Ireland, the newly combined company would to have
sufficient business activities in Ireland and the original Elan
shareholders would have to own at least 20 percent of shares of
the merged company.
"If regulators get the sense that a company is buying Elan
just for the tax break, they will scrap the deal," said one of
Royalty Pharma may still win the day if no rival bids
emerge. Elan shareholders then could press Elan to go back to
Royalty, or Royalty could enter the bidding at the last minute.
"I think at the end of the day there is a high likelihood
this goes to Royalty Pharma," the industry banker said.