* Perrigo to pay $6.25 per share in cash, $10.25 in stock
* Ends takeover saga that saw hostile bids by Royalty
* Deal to cut U.S. firm's effective tax rate
* Gains access to royalties from blockbuster drug
By Padraic Halpin and Sam Cage
DUBLIN, July 29 U.S. drugmaker Perrigo
agreed to buy Elan for $8.6 billion in a deal that will
hand it tax savings from being domiciled in Ireland and
royalties from a blockbuster multiple sclerosis treatment.
The deal, agreed on Monday, ends a bitter takeover battle in
which Elan rejected three lower bids from U.S. investment firm
Royalty Pharma amid injunctions, court hearings and a
war of words before putting itself up for sale last month.
Michigan-based Perrigo, which makes over-the-counter
pharmaceuticals for the in-store brand market and has a market
value of some $12 billion, will pay $6.25 per share in cash plus
$10.25 per share in stock, a premium of about 10.5 percent over
Elan's closing price on Friday.
Elan shares rose 3.8 percent on Monday to $15.5,
close to a bid that analysts expect will be snapped up by
shareholders who rejected Royalty's successive overtures.
Perrigo shares dropped 6.7 percent to $125.3
"Elan has uncovered an excellent offer for its shareholders,
substantially ahead of the level Royalty Pharma could achieve,"
Berenberg Biotech analysts said in a note to clients.
For Elan and Chief Executive Kelly Martin, who took over the
firm in 2003 when its share price had sunk to $2, the Perrigo
deal is vindication for rejecting Royalty's advances.
Martin, a low-key former Merrill Lynch banker, took a series
of verbal attacks in a four-month saga that frequently turned
In an open letter to the Elan board last month, Royalty
predicted that Elan was embarking on a lengthy and likely
fruitless effort to find a buyer willing to better its offer.
Royalty's final bid was $13 in cash per share as well as a
"contingent value right" that could have added a further $2.50
per share if Elan's blockbuster multiple sclerosis drug Tysabri
hit certain sales milestones.
According to Deutsche Bank analysts, Perrigo's offer is a
significant premium to their $12 per share valuation of Elan,
reflecting the tax advantage, and worth about a fifth more than
their calculation of the Royalty bid.
Reuters reported exclusively last week that Perrigo and New
York-based Forest Laboratories Inc were preparing to
Elan is especially appealing for companies like Perrigo that
can easily move their headquarters abroad because of the very
low 12.5 percent corporate tax rate in Ireland, compared with 35
percent in the United States.
Fellow generic drugmaker Actavis' $5 billion
acquisition of Dublin-based Warner Chilcott in May
allowed it lower its tax rate to 17 percent from 28 percent.
Hundreds of U.S. companies have subsidiaries in Ireland for
the same purpose. That practice prompted international criticism
after the U.S. Senate revealed that technology giant Apple
paid little or no tax on tens of billions of dollars in
profits channelled through the country.
The Elan deal buys Perrigo a full tax domicile in Ireland,
bringing the bulk of its income under the Irish tax regime. It
will use $4.35 billion in bridge financing from Barclays and
HSBC plus cash to fund the deal, which also brings it Elan's
$1.9 billion cash pile.
Perrigo Chief Executive Joe Papa said the acquisition would
cut its effective tax rate to 17 percent in the first 12 to 18
months from around 30 percent now. Chief Financial Officer Judy
Brown told an analyst call that it may go even lower over time.
"We think it's financially compelling and when you put it
together with an Irish domicile that has operational tax
synergies, we think it's a really compelling story," Papa told
Reuters in a telephone interview.
The Perrigo boss, for whom Elan is the largest of more than
a dozen deals he has led since taking over in 2006, said the
company remained committed to the United States where it employs
over half of its 9,000 workers. It will remain listed in New
York and Tel Aviv, he said.
Papa said Ireland would give Perrigo a gateway into the rest
of Europe and saw the Tysabri royalty, worth of up to 25 percent
on future sales, as a means to fund future opportunities.
Elan sold its 50 percent interest in Tysabri to U.S. partner
Biogen Idec in February for $3.25 billion but retained
royalties in the drug whose sales rose to $1.6 billion in 2012.
Elan, founded as a private company in 1969, also drew
initial interest from Allergan Inc, Mylan International
and Endo HealthSolutions Inc, several people
familiar with the situation have said.
Barclays advised Perrigo on the deal, while Citigroup Global
Markets, Davy and Davy Corporate Finance, Morgan Stanley & Co.
International and Ondra LLP acted for Elan.