* Royalty makes firm offer of up to $12 per share
* Size of offer depends on pricing of share buyback
* Elan should now open up its books - shareholder
* Elan to promptly assess bid, advice shareholders
By Padraic Halpin and Jessica Toonkel
DUBLIN/NEW YORK, April 15 Royalty Pharma's
sweetened its bid for Irish drugmaker Elan,
heaping pressure on its management to open its books to the U.S.
investment firm in the hope of a better offer, analysts and
shareholders said on Monday.
Royalty made its formal cash offer worth up to $7.3 billion,
or $12 a share, ahead of a May 10 deadline for a firm bid,
improving on an initial approach worth $11 per share that was
rejected by Elan in February for being "highly conditional".
Elan, which claimed last month that most of its shareholders
did not view Royalty's proposal as worth consideration, said in
a statement that it would promptly assess Monday's bid and
advise its shareholders accordingly.
The New York-based company, targeting royalty rights for
multiple sclerosis (MS) treatment Tysabri worth hundreds of
millions of dollars annually, said the offer may fall below $12
depending on Elan's pricing of a share buyback this week.
It urged shareholders, many of whom it has met in recent
weeks, to pressure Elan's board to accept its bid.
"I think it's a good start," said Elan investor Matt
Strobeck, a former partner at Boston-based Westfield Capital
Management Co., who met with Royalty Pharma executives in March.
"Elan's board should now open up its books to Royalty Pharma
so they can justify why they think the company should get a
higher price... The board would be breaching its fiduciary duty
to shareholders if it does not allow Royalty to examine its
Royalty's advances have threatened to scupper Elan's plan to
reinvent itself through a series of acquisitions and reward
shareholders with cash after selling its 50 percent interest in
Tysabri for $3.25 billion plus future royalties to U.S. partner
The company, in which U.S. group Johnson & Johnson
holds an 18 percent stake, secured strong approval from
shareholders last week for the $1 billion buyback priced at
between $11.25 and $13 a share.
However, Elan has little track record in making acquisitions
and Royalty has questioned its ability to pull off such a plan.
Elan's share price, hit hard last year when its main
experimental drug hope failed, rose by almost 10 percent to
$10.30 after it unveiled its disposal plan but has been pushed
16 percent higher by Royalty's offer.
"A FAIR PRICE"
The Dublin-based company, left with just one experimental
drug in its pipeline following the Tysabri deal, improved the
terms of its own plan last month by offering shareholders up to
20 percent of future royalties from the blockbuster MS drug.
However, Royalty could also factor in Tysabri's future
performance via a contingent value right (CVR) that would reward
Elan's current shareholders should Tysabri hit certain sales
milestones, two people familiar with the matter told Reuters
Royalty's Chief Executive Pablo Legorreta told reporters on
Monday that its offer did not include a CVR, but that the
company reserved the right to include one.
Strobeck, who has sold most of his personal stake but still
owns some shares in custodian accounts, said he would tender at
$12 with a CVR or some kind of similar structure. He declined to
say how many Elan shares he sold or still owns.
The value of Royalty's bid will fall depending on the result
of the buyback and could return to $11 per share if the strike
price at an auction for repurchasing the stock is between $12.25
and $13 a share.
Shareholders should "send a message to the Elan board" by
tendering all of their stock at $11.75 or $12 and fully benefit
from Royalty's $12 offer, the company said.
Elan's shares, which closed at $12.01 in New York on
Friday, fell a touch to $11.83 after the announcement on Monday.
Its shares on the Dublin market closed 1 percent higher at 9.09
"I think it's a fair price for the assets as they stand.
Investors have a straight choice: Do they take the cash today or
do they believe in management's ability to execute accretive
acquisitions," said Deutsche Bank analyst Richard Parkes.
Royalty Pharma said it would finance the offer through
existing resources and new credit facilities. Its advisers are
J.P. Morgan, BofA Merrill Lynch and Groton
Citi and Ondra Partners acted as financial advisors to Elan
on its recent Tysabri deal, while Cadwalader, Wickersham & Taft
and A&L Goodbody were legal counsel.