Elan wins reprieve as takeover rumour runs

Elan shares bounced in Dublin and New York yesterday after two days of record losses. The recovery came amid speculation that the group could be the subject of a takeover, or be broken up. Shire Pharmaceutical, which had been seen as a potential takeover target for Elan before the collapse in its share price this week was one of the suggested buyers.

Elan shares had risen almost 12 per cent in Dublin by mid-afternoon when the US market opened. They rallied strongly on Wall Street and were up 15 per cent to over $16 by mid-morning, before falling back to €15 to €15.50, well off the low of €12.50 hit on Tuesday .

The bounce was attributed to investors taking a more realistic view of Elan's prospects after several days of near panic selling. "This is not a company that is going to go bankrupt. But they have to acquire products if they are going to make the transition to a bio-pharmacy company," said a Dublin analyst who did not want to be named.

After the fall in its share price from $40, Elan is trading at a significant discount to other comparable stocks, according to analysts. Mr David Marshall, of NCB Stockbrokers, said Elan's aggressive ambitions to transform itself from drug delivery specialist to fully integrated pharmaceutical company were in disarray. The firm had a sum-of-the-parts value of $6 billion to $6.8 billion, which implied a share price of $16.70 to $19.20, he said.

Elan's profitability and growth prospects remained difficult to asses but this would not necessarily deter rivals interested in certain products, said Mr Max Hermann of ING Barings in London which has downgraded Elan to "sell".

Mr Robert Hazlett, of Robertson Stephens in New York, said the rebound was due to "some short-covering combined with some investors trying to evaluate the underlying fundamentals of Elan's drug business".

Another four US law firms have filed class actions against Elan on behalf of shareholders. This brings the number of firms suing Elan to six. Three law suits were filed in New York by Bernstein Liebhard & Lifshitz; Kaplan Fox and Schiffrin & Barroway. The fourth was filed in California by Scott & Scott. All four cite the Wall Street Journal article, published last Wednesday, which sparked the sell off. In the article, a former Securities and Exchange Commission chief accountant, Mr Lynn Turner, described some of the firm's accounting practices as a charade.

It was a reference to the practice where Elan would invest in research and development joint ventures and then write back the investment as revenue in the form of licence fees. It is alleged that the practice artificially inflated Elan's earnings.

Three of the class actions claim it violated the Securities Exchange Act of 1934. Specific sections of the Act are mentioned in two of the claims, which allege breaches of Section 10 (b) and 20 (a) in respect of the way the company reported earnings from its research associates.

The firm has already dismissed two similar suits as meritless. - Additional reporting by Reuters.