Royalty takes buy offer directly to Elan shareholders

Royalty Pharma has taken its outline offer for Elan directly to shareholders as it looks to step up pressure on management at the Irish drug business.

Royalty chief executive Pablo Legorreta said he had started meeting key investors in the listed Irish group just over a week after announcing a $6.6 billion proposal to buy out the company.

He said Royalty remained “committed” to the acquisition but made no move to increase the initial $11 a share offer. Shares in Elan have trading consistently above this level since the offer first emerged on February 25th.

However, in a series of briefings yesterday, Mr Legorreta said Royalty, if allowed to conduct due diligence on the business, would “then come up with a fair offer for shareholders”, holding out the prospect of a higher formal offer.

Due diligence

The company said it believed it could complete due diligence within 20 days if granted access but it expressed “disappointment” that Elan management had so far refused to enter discussions on its proposals.

Responding, Elan said the Royalty Pharma proposal “remains an indication of interest” and was highly conditional, a charge Royalty denies.

“Any credible proposal, which may be made by Royalty Pharma or any other party will, of course, be considered by the company alongside the strategic transactions and unique investment thesis referred to in our recent announcements,” Elan said in a statement.

Saying Elan’s management had done a “really good job streamlining the company” and acknowledging the challenges it had faced in doing so, Royalty publicly questioned whether Elan’s management had the track record in making acquisitions “or in-licensing late-stage products”.

Mr Legorreta said the company faced “significant execution risks” in its proposed post-Tysabri strategy. Royalty believes Elan cannot acquire assets at prices low enough to deliver its projected returns.

Road show

Mr Legorreta said he was starting presentations to Elan investors on the US west coast yesterday to press the case for its sale to Royalty, before continuing with a roadshow on the east coast and then in Europe next week. The presentations are designed to target 10-15 shareholders owning the majority of the business.

Shareholders, Mr Legorreta added, faced a “clear choice – take the cash today or support management” in what was a challenging future direction. – Additional reporting Copyright The Financial Times Limited 2013