Elan buys USdrug group in all-share deal worth $1.8bn

Elan's $1.8 billion (€2.1 billion) acquisition of US pharmaceuticals group Dura puts it well on its way to meeting its targets of $2 billion sales ahead of its 2003 target.

The Dura deal is the biggest in Elan's history and cements the group's position as Ireland's biggest public company, worth twice as much as AIB Group. The 34.5 million new shares that Elan is giving Dura shareholders will mean that Elan will have an even greater dominance of the ISEQ Index, with the company possibly accounting for almost 30 per cent of the index when the deal is completed by the end of the year.

While Elan's share price fell immediately after the announcement of the Dura deal, analysts said this did not reflect any dissatisfaction in the market but more an element of indigestion with the 34 million extra Elan shares that are being issued - more than 12 per cent of the existing share capital.

At the close of heavy trading on the NYSE, Elan was down $23.18 3/4 at $28.93 3/4. The all-share deal values Dura shares at $35, a 20 per cent premium on last Friday's closing price.

Dura is a speciality pharmaceutical group which, like Elan, has moved from developing drug delivery systems to become a more broad-based pharmaceuticals company. Last year, Dura had sales of $301 million and pre-tax profits of just over $44 million. In comparison, Elan's sales last year were just over $1 billion and it had pre-tax profits of $269 million.

Most of Elan's previous large acquisitions diluted earnings in the first year before making an earnings contribution subsequently but Elan chairman and chief executive Mr Donal Geaney said the Dura deal would add to earnings next year.

"This transaction significantly enhances Elan's North American pharmaceutical business by doubling the size of our US sales force to more than 1,000 sales representatives and adding more than $300 million of sales revenue in 2001, driven primarily by four key products."

Dura has three antibiotic products - Maxipime, Ceclor and Azactam as well as its Nazarel inhaled corticosteroid.

"As a result of this transaction, we will have a much stronger sales and marketing infrastructure, a broader portfolio of marketed products and additional strength in our management team," Mr Geaney said.

While there were some suggestions in the market that Elan might be paying over the top for what is essentially a company with four primary products and 500 sales representatives, its chief financial officer, Mr Tom Lynch, said the $1.8 billion price tag - or six times sales - was not out of line with recent deals in the pharmaceutical industry.

Mr Lynch said Elan had been an investor in Dura for some time and owned 5 per cent of the company before the takeover. He said the combination of the two would generate pharmaceutical revenues of more than $1 billion, while broadening Elan from its current oncology, neurology and pain treatment products into products for the treatment of infection and respiratory conditions.

This view was endorsed by Goodbody analyst Ms Joan Garahy, who said the six-times-sales being paid for Dura, was much less than Elan's own price/sales multiple.

"There are a lot of cultural overlaps between Dura and Elan. Both started as drug delivery companies before coming more integrated companies with their own products."

She said the Dura deal gave Elan a significant infrastructure in the US by doubling its sales force to 1,000 representatives. "It offers the opportunity for cross-selling of both companies' products, it enhances product sales by more than $300 million and there should be synergies in marketing and head office operations," she said.

Despite being based in Ireland and traded on the Irish stock market, more than 80 per cent of Elan shares are held by US investors - a legacy of the period in the 1980s and 1990s when Elan was a relatively small company spurned by Irish institutional investors.