Abbott Laboratories' $7.3 billion (€7.06 billion) bid for Alza Corporation - a virtual mirror-image of Elan Corporation - has inevitably focused the spotlight on Elan as the next take-over target in the pharmaceutical sector. But one thing seems certain, given the scale of Abbott's bid for Alza, Elan will not go cheaply to any of the myriad of pharmaceutical companies tipped as possible suitors.
Needless to say, Elan shares have jumped sharply since news of the Abbott/Alza deal leaked into the market, especially as Abbott's price/ earnings valuation of Alza is 50 per cent higher than Elan's own rating in the market. That suggests that, all things being equal, Elan shares should be trading above $40 and that values Elan at well over $10 billion. But while Wall Street has been getting itself into a tizzy about the prospects of a bid for Elan - share volumes on the NYSE have been three times the daily average this week - the Dublin market does not seem totally convinced although the shares have also been bid up in Dublin to match the rise in new York.
British pharmaceutical giant Glaxo Wellcome has been mentioned as one likely bidder, but that speculation seems to have been triggered by suggestions from Elan itself that it is gearing up for some more collaboration agreements with international pharmaceutical groups. Elan already has lots of such collaboration agreements and joint ventures and none of these has so far matured into anything more significant in the corporate sense. If anything, over the few years, Elan has been an acquirer. The question now is whether it becomes an acquiree.
If Elan does become the focus of a take-over bid, it will not necessarily be a catastrophe for the Irish market even though Elan is the third biggest stock in terms of market capitalisation. Despite its success, Elan has failed to get the interest of the major Irish fund managers and the big Irish funds are noticeable by their absence from a stock that makes up over 12 per cent of the ISEQ index. Irish fund managers have always been a mite suspicious of Elan, mainly because they don't really understand its business and didn't appreciate the volatility of the share price.
That may end up a short-sighted approach to a stock that has found favour on Wall Street, where institutional investors are arguably more sophisticated when it comes to taking positions in companies which don't fit the rigid investment criteria applied by the typical Irish fund manager. A look at the bigger shareholders in Elan shows their calibre: Putnam owns almost 8 per cent; Fidelity almost 6 per cent; Provident 5 per cent; W.M. Blair 3.1 per cent; AIM 2.7 per cent; and Capital 2.3 per cent. Not an Irish institution with a disclosable shareholding to be seen.
