* J&J cuts stake in Elan via Irish firm's share buyback
* Elan buys back shares at $11.25 apiece
* Royalty had urged shareholders to tender at $11.75 or $12
* Result means Royalty will reduce its bid
* Traders bet on Royalty returning with better offer
By Padraic Halpin and Jessica Toonkel
DUBLIN/NEW YORK, April 18 U.S. healthcare firm
Johnson & Johnson cut its stake in Elan Corp on
Thursday in a move that clouds prospects for a $7.3 billion
takeover bid for the Irish drugmaker.
U.S. investment firm Royalty Pharma on Monday made an
improved $12 per share bid for Elan, which has rejected its
suitor's overtures and wants to remain an independent company.
However, that offer depended on the outcome of a $1 billion
share buyback being conducted by the Irish firm.
Royalty had urged Elan's shareholders to tender shares at
between $11.75 and $12 apiece and warned that if they did not,
it would reduce its offer.
Elan said on Thursday it had bought back the
targeted amount of stock at the bottom of its indicative price
range of $11.25 to $13, with Johnson & Johnson (J&J) accounting
for 92.3 percent of all shares purchased.
J&J, whose stake in Elan has fallen to 4.9 percent from 18
percent, did not give a reason for selling shares in Elan, but
said it would make a $213 million gain on its 2009 investment.
Royalty said that as a result of the pricing of the buyback,
it would lower its offer for Elan to $11.25 a share.
At 1740 GMT, however, Elan's shares were up 0.2 percent at
$11.9 in New York. Analysts were divided whether this signalled
confidence in Elan's management, or speculation that Royalty
would eventually return with a higher bid.
"It's a strong message that the shareholder base of Elan is
not thinking about tendering at the $13 level," said
Berenberg Bank analyst Adrian Howd, referring to the top end of
the price range proposed by Elan for its share buyback.
Elan sold its 50 percent interest in lucrative multiple
sclerosis drug Tysabri for $3.25 billion plus future royalties
to U.S. partner Biogen Idec in February, and wants to
spend the bulk of the money on acquisitions.
Royalty argues Elan's management does not have a track
record of deals, and has urged the Irish firm's shareholders to
accept its cash offer. It wants to add the royalty rights to
Tysabri - worth hundreds of millions of dollars annually - to
its large stable of royalty streams.
Elan said just 4 percent of shares were tendered in the
price range recommended by Royalty.
Mirabaud Securities analyst Nick Turner was surprised more
Elan shareholders had not tendered shares towards the top end of
the indicative range.
"Whether they believe they can get a better return out of
Elan under current management ... that is not an argument that
holds water with me," he said.
The volume of Elan shares changing hands had more than
trebled by late morning trading in New York compared with the
day before, which some analysts saw as a sign that dealers are
still hoping for a higher bid for the company.