US drugmaker Perrigo buys Irish biotechnology major Elan for $8.6 bn

The largest US manufacturer of over-the-counter (OTC) pharmaceuticals Perrigo Co yesterday struck a deal to acquire Irish biotechnology major Elan Corp Inc for approximately $8.6 billion in a consolidation move aimed at saving taxes and gaining on royalties.

The deal that has been unanimously approved by the boards of both the companies brings an end to the multiple hostile attempts by US investment firm Royalty Pharma for the takeover of the Irish drugmaker during the past few months.

In June, Elan's shareholders approved a $200-mn share-repurchase programme, delivering a blow to the third $6.7-billion billion bid from Royalty Pharma. (See: Elan shareholders approve share-repurchase program jeopardising Royalty's bid)

Under the terms of the current deal, Perrigo will pay $6.25 in cash and 0.07636 shares of New Perrigo, a newly-formed Irish company for the purpose of the transaction, for each Elan share valuing it at $16.50, based on Perrigo's closing price on Friday.

The offer represents a premium of about 10.5 per cent over the closing price of Elan ADRs in New York on Friday.

Perrigo shareholders will receive one share of New Perrigo for each share they own upon closing and $0.01 per share in cash.

Further to the announcement of the deal, shares in Elan surged over 6.5 per cent to $15.90 in yesterday's morning trade in New York, but later it subsided to $15.46, up 3.6 per cent.

The acquisition will create a premier global healthcare company with its headquarters in the Republic of Ireland, where corporation tax is about one-third at 12.5 per cent compared to 35 per cent in the US.

Dublin, Ireland-based Elan is a leading biotechnology firm which has major interests in the US. It was formed as a private company in 1969 and became a public limited company in 1984.

Elan's blockbuster drug Tysabri, which is used in the treatment of multiple sclerosis earns a 12-per cent royalty on global sales which will rise to 18 per cent from 1 May 2014 and is expected to provide sustainable cash flows.

Perrigo chief executive Joe Papa said, ''We believe this transaction is compelling for Elan shareholders and fully takes into account the value of Elan's assets, including a large cash balance and a double-digit royalty claim on Tysabri, a blockbuster product that generated revenues of $1.6 billion last year and has been growing at a compound annual growth rate of 19 per cent.''

''We believe the combination of Perrigo and Elan will create an industry-leading global healthcare company with the balance sheet liquidity and operational structure to accelerate our growth and capitalise on international market opportunities,'' Papa further added.

Elan CEO Kelly Martin, said, ''This transaction underscores the tremendous value of Elan's platform. The new combined company should deliver value, growth and diversification to shareholders for many years to come.''

Alegan, Michigan-based Perrigo, established in 1887, develops, manufactures and distributes OTC and general prescription drugs, infant formulas, nutritional products, dietary supplements and other products. The company's primary markets are spread over the US, Israel, Mexico, the UK, India, China and Australia.

The transaction is expected to be accretive to Perrigo's adjusted earnings in 2014.

Perrigo expects substantial after-tax operating expense and tax savings of over $150 million annually through the combination after the closure of the transaction, expected by the end of this year. The merged entity will be governed by Perrigo's current leadership team.

On closing of the transaction, Perrigo shareholders will own approximately 71 per cent of the combined company while Elan shareholders will own the remaining 29 per cent.

New Perrigo which has been formed as a private limited company in Ireland for the purpose of execution of the merger deal will be later converted into a public limited company under the Irish Companies Act.

New Perrigo shares are expected to be listed on the stock exchanges of New York and Tel Aviv.