Bond buyback fuels 12% rise in troubled Elan's share price

Shares in troubled pharmaceutical firm, Elan, rose by almost 12 per cent in Dublin yesterday upon reports that the company had bought back a large portion of its US bonds at a discounted price.

The stock closed up 35 cents at €3.35 on the back of the weekend news, its highest point since last September.

In New York, Elan had gained more than 18 per cent by mid-afternoon, rising to $3.88.

The Sunday Tribune reported that the firm had bought back about $400 million (€379 million) of its bonds at a discount of between 20 and 25 per cent.

Such a move would dramatically reduce the company's exposure to a $1 billion liability due at the end of this year, when bond holders have the opportunity to exercise a so-called "poison put" option on securities they first purchased in 1998.

The liability has long been viewed as a drag on Elan's potential to recover from current difficulties.

An Elan spokesman said last night that the company had never publicly discussed its strategy with regard to the bonds and did not intend to do so.

Elan indicated last September, however, that it may in the future seek to "repurchase its equity securities or its outstanding debt", either in the open market or in privately negotiated transactions.

It has since appointed investment bank, Morgan Stanley, to act on its behalf.

Yesterday's gains come after a week of positive performance, as Elan benefited from a broad market welcome to the appointment of former Merrill Lynch executive Mr Kelly Martin as chief executive.

Analysts were universally positive on the report of the bond buyback, acknowledging that such a development would significantly ease financial pressure on Elan.

Mr Peter Frawley of Merrion Stockbrokers said it would suggest that the risk of a short-term liquidity crisis was receding, while Goodbody analyst, Mr Ian Hunter, said a buyback of this magnitude would be seen "in the short term" as positive.

Both commentators warned, however, that Elan still carried significant risks, including its exposure to a SEC investigation and the possibility of liquidity constraints in the future.