Elan says gets rival approaches, holds out for $15.50 per share cash

By Sophie Sassard

LONDON (Reuters) - Ireland's Elan has attracted the interest of a number of mid-sized drug companies and a cash offer of $15.50 per share could be enough to secure its support for a bid, a source with direct knowledge of the situation said on Monday.

Elan, which has resisted an approach from investment firm Royalty Pharma for more than three months in a bitter takeover battle, rejected an increased offer from the U.S. firm on Monday and said for the first time it was assessing enquiries from other parties.

Royalty's third increased bid of $13 cash per share plus an extra $2.50 contingent on multiple sclerosis drug Tysabri hitting certain sales milestones was still wholly inadequate for shareholders, the Dublin-based company said in a statement.

Institutional investors contacted by Reuters last week said they did not think this was Royalty's final offer, and the source with knowledge of the situation said an all-cash variation on the latest offer - which values Elan at a potential $8 billion - would elicit a different response.

"If Royalty Pharma made a cash offer of $15.50 a share, Elan would seriously consider it," said the source, who wished to remain anonymous because they were not permitted to speak to the media.

"But Royalty's offers have remained so far away from the company's long-term fair value that Elan has not yet discussed what the magic number would actually be."

A person familiar with Royalty's thinking said that if Elan were really willing to talk about a $15.50 per share cash offer, then "they ought to return a call (from Royalty)."

Royalty Pharma declined comment.


The first source said any fresh bid would have to include a substantial portion of cash, because hedge funds have piled into the stock in recent weeks and any new bidder would likely be eyeing up Elan for the tax benefits gained from acquiring it.

Ireland-based companies like Elan are often attractive takeover targets for companies based in the United States because they can offer the acquirer a lower tax rate. The corporate tax rate in Ireland is 12.5 percent, compared with 35 percent in the United States.

Royalty Pharma is already based in Ireland and thus would not gain any special tax benefit from buying Elan.

"They (the potential bidders) are not big pharma companies. It makes sense for U.S. mid-cap listed companies with market cap either around $3 to 5 billion or up to $20 billion," the source said.

"These are companies with a pipeline of products which could therefore benefit from the tax break, as opposed to marketing- only companies to which the benefits would not apply."

A spokesman for Elan said the company could not comment any further on who the other interested parties are. Elan said it had instructed its advisors Citigroup to assess the recent unsolicited enquiries.

Elan's management, which has previously said it believes the company should command a value of between $15.50 and $20.80, is also trying to convince shareholders holding off for a bigger payday that deals it has struck in recent weeks will add more value.

The company's shareholders meet next Monday to vote on the series of defensive transactions. Royalty's bid is contingent on each transaction being voted down.

Elan also won a U.S. District Court order last week stopping Royalty from closing its tender offer. The court will meet again on Tuesday to decide whether to grant a preliminary injunction against Royalty.

(Additional reporting Padraic Halpin in Dublin and Jessica Toonkel in New York; Editing by Tom Pfeiffer and David Holmes)