Cantillon: Elan paying the price of misplaying its hand

 

One minute, Elan’s suitor, Royalty Pharma, was warning it might be forced to walk away as shareholders appeared certain to back a proposal by the Irish biotech group to sanction a further buyback of shares.

Twenty-four hours later, Elan was putting itself on the market as it emerged that other key elements of its defence against Royalty’s hostile approach were likely to be rejected.

The shares leapt 9 per cent yesterday as the company announced it was for sale. But questions remain – most notably, how much shareholders think they can reasonably expect to secure in a sale process. The offer from Royalty is worth a minimum of $13 (€9.70) a share, or $6.7 billion, rising possibly, but not likely, as high as $15.50 or $8 billion. Few analysts consider that cheap.

Elan has cited expressions of interest from undisclosed sources. The understanding is that these are likely from mid- sized pharma businesses but it is unclear how they would value Elan any higher.

For their part, shareholders have shown little logic in their approach. The Irish Takeover Panel is holding Royalty to its “all or nothing” commitment – ie forcing it to abandon its pursuit of Elan if shareholders support any one of the four resolutions at Monday’s extraordinary general meeting.

That meeting has yet to happen but a review of proxies voted up to the end of business on Wednesday showed that investors were minded to back at least one of the resolutions – a $200 million share buyback.

Elan slumped almost $600 million when the news emerged – alongside Royalty’s suggestion that such an outcome could see it being forced to walk away. In other words, shareholders knocked three times the value of the buyback off the worth of their company.

The sale of Tysabri to Biogen and the hurried assembly of a disparate portfolio of assets to tempt shareholders to stay loyal appears to have backfired on Elan management. The future is as unclear as ever. Volatile to the end.

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