Elan Corp. (ELN) said the strike price for a buyback of 116.4 million shares was set at $11.25 per American depository receipt, indicating a takeover bid by Royalty Pharma may be set at that level.
Among the shares tendered, representing 14.8 percent of current shares, 92.3 percent were sold by one corporate stakeholder, Elan said in a statement today. That shareholder is Johnson & Johnson (JNJ:US), which held an 18 percent stake in the company, according to Elan spokesman Jonathan Birt. Royalty Pharma said this week it may set a takeover offer price of $11.25 if the shares are tendered at that price.
Elan, led by Chief Executive Officer Kelly Martin, is buying back the shares to return a portion of the $3.25 billion it received after divesting its stake in the multiple sclerosis drug Tysabri to U.S. partner Biogen Idec Inc. (BIIB:US) Royalty Pharma’s takeover offer challenges Martin’s plan to embark on company acquisitions to bring in new products.
Excluding J&J, which confirmed its share sale in a statement, 73.1 percent of all shares weren’t tendered, suggesting that about 60 percent of the shareholding did not tender, UBS analyst Guillaume van Renterghem said in a note today.
“The fact that 60 percent of shares were not tendered makes us believe that the likelihood of Royalty Pharma being successful in its attempt to buy Elan has significantly reduced,” van Renterghem said. “A significant downside risk exists if the deal does not go through and the offer expires.”
J&J’s sale will result in an after-tax gain of about $213 million, which it will invest in its business, the company said in the statement.
Elan shares rose 0.5 percent to 8.97 euros ($11.73) in Dublin. Elan’s American depository receipts climbed 0.2 percent to $11.90 at 12:01 p.m. in New York.
The institutional shareholders holding on to their stakes indicates a vote of confidence in Elan, prompting the positive reaction in the market, van Renterghem said. J&J’s relationship with Elan had already been winding down after an Alzheimer’s drug they were jointly developing with Pfizer Inc., bapineuzumab, failed in a late-stage clinical trial last year, he said.
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