Cantillon: Royalty’s latest bid could prove a bitter pill to swallow for Elan

Royalty Pharma tightened the squeeze on Elan yesterday with a second revised offer just hours after diclosing its had secured the support of holders of just 7.8 per cent of Irish specialty drug group's shares.

Having initially offered shareholders $11.25 a share, and then $12,50, Royalty is now saying it will pay $13 a share in cash if it succeeds in securing the support of 50 per cent plus one share in the target company. In addition, it is offering a further $2,50 per share payment down the line, contingent on Tysabri delivering royalties more in line with the higher figures suggested by Elan in its defence against the earlier Royalty offers.

The move was a swift reaction by Royalty to the relatively low level of support for its $6.4 billion offer for the company. It was likely also seen as a necessary move to counteract the disappointment within Royalty that the Irish Takeover Panel had on Thursday rejected its effort to remain in the game should Elan shareholders accept two smaller elements of the company's defence strategy at an egm on June 17th.

The panel ruled the Royalty bid will lapse if any of the measures are voted through.


Royalty had sought to amend the conditions of its offer to avoid the bid lapsing if either or both of the proposals to spend a further $200 million buyback shares or the sale of ELND-005 were approved. Though minor in the overall scheme, those elements are seen as the least contentious and most likely to secure shareholder approval – possibly scuppering Royalty ambitions. More importantly, This latest revised bid brings the Royalty offer very much into the realm that Elan says accurately represents the fair value of the company.

Price is , increasingly, being taken out of the equation in what has become a bitter war of words between the two parties. Elan said yesterday that its board would consider the offer but – as the respective valuations of the business move closer together – it is increasingly pinning its hopes on shareholders being attracted more by the abilities of the current management team than by the upfront cash on offer from Royalty. And that faith is sure to be tested with a second proxy advisory group, Glass Lewis, joining Institutional Shareholder Services in advising against support for the Elan transacitons – citing the "lack of financial justification"for each of the acquisitions and other actions.