July 21, 2009 / 4:04 AM / 10 years ago

DEALTALK-What shareholders don't know about Elan/J&J deal

* Elan gives J&J option to acquire Biogen Tysabri rights

* Option would kick in if change of control at Biogen

* Elan, J&J did not reveal agreement in recent transaction

(For more Reuters DEALTALKS, click [DEALTALK/])

By Toni Clarke

BOSTON, July 20 (Reuters) — Irish drugmaker Elan Corp Plc ELN.I gave away more than it told investors in its recent $1.5 billion transaction with healthcare conglomerate Johnson & Johnson (JNJ.N)

J&J agreed to pay $1 billion for an 18.4 percent stake in Elan, and $500 million for a majority stake in its pipeline of experimental Alzheimer’s disease drugs. [ID:nL2891369]

But Elan gave up more than that to get the deal done.

Reuters has learned from sources with knowlege of the situation that Elan has given J&J an option to acquire Biogen Idec Inc’s (BIIB.O) 50 percent stake in the multiple sclerosis drug Tysabri, should there be a change of control at Biogen.

Kelly Martin, Elan’s chief executive, declined to say whether he had given up one of Elan’s most valuable assets. He told Reuters in a recent interview that more details of the deal will be revealed, but only after it has closed.

“There are certain things in the J&J transaction which have still to be made public and when we close and make them public, we make them public,” he said.

Naturally both companies might be reluctant to reveal such an important piece of information. J&J has gained a right, that had previously been undisclosed, worth what some people familiar with the companies estimate to about $1 billion.

Elan and Cambridge, Massachusetts-based Biogen have a 50-50 partnership under which each has the right to acquire full control of Tysabri, which is now on track to generate $1 billion a year, should there be a change of control at either company.

Should anyone try to buy Biogen, they would have to have a discussion with Elan.

Biogen did indeed try to sell itself but failed. Billionaire investor Carl Icahn, who now has two representatives on Biogen’s board, claimed Biogen sabotaged any deal by making it difficult for potential bidders to speak to Elan.

Elan, then, has the ability to control who buys Biogen.

That is a valuable right and one which Biogen was willing to pay to eliminate. The company previously made an offer to Elan of at least $700 million, and would have been willing to pay more, according to a source familiar with the situation.

Elan chose not to accept the offer, for reasons that no doubt will eventually be explained. Instead, it has now handed the right to J&J as part of the recent deal.

Now any buyer of Biogen must go through J&J if J&J chooses to exercise its option — and why wouldn’t it?

If Biogen was again put up for sale, J&J could be in a strong position to acquire it without a competitive auction because other potential bidders might be unwilling to negotiate with J&J over the Tysabri rights.

A Biogen spokeswoman said only that there was no change to Biogen’s change-of-control agreement.

Elan plans to use most of the money from the transaction to cut its debt by 70 percent to $400 million. Its balance sheet has been strengthened and it solves its problems in the short term.

But J&J walks away with an 18.4 percent in Elan, an interest in one of the most promising Alzheimer’s programs, an option to buy a Biogen’s stake in Tysabri, which effectively controls who eventually could aquire Biogen.

One M&A lawyer who was not involved with the deal but has been informed of the details said: “someone at J&J is in for a hefty bonus.”

Still, with Icahn on the board, Biogen is unlikely to accept the arrangement without a fight. Icahn, who was not available for comment, is not known for getting anything less than top dollar for the companies he is instrumental in selling.

A spokesman for J&J said the company has fulfilled its disclosure responsibilities with the U.S. Securities and Exchange Commission but declined to elaborate. It is possible it does not consider the Tysabri part of the deal material.

And even though most of Elan’s shareholders are in the United States, the company is headquartered in Ireland, meaning it is also exempt from filing full terms of the deal.

Elan is set to report its second-quarter earnings on Tuesday. Will the secret be revealed? We’ll see.

Additional reporting by Padraic Halpin in Dublin; Editing by Valerie Lee

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below