In a bid to boost its revenue stream and save taxes, Perrigo Company (PRGO) inked a definitive agreement to acquire Irish entity Elan Corporation (ELN) for approximately $8.6 billion. The cash and stock deal, cleared by the boards of directors of both companies, is expected to close by the end of calendar year 2013.
The combined entity will be headquartered in Ireland. The deal is expected to boost Perrigo’s adjusted earnings per share in fiscal 2014. The company’s fiscal year ends on the last Saturday of June every year. Following the closure of the deal, the shareholders of Perrigo will own approximately 71% of the merged entity and Elan shareholders the balance.
Perrigo’s offer price of $16.50 per share represents a 10.5% premium over Elan’s closing price on Jul 26, 2013. As per the terms of the deal, each stockholder of Elan will be entitled to receive $6.25 per share in cash from Perrigo following closure. Furthermore, each shareholder of Elan will receive 0.07636 shares of the merged company for each Elan share. The merged entity will have Perrigo’s current leadership group at its helm and will be known as either Perrigo Company plc or its variant.
Through the deal, Perrigo expects to generate post-tax annual operating expense and tax savings in excess of $150 million. The shift in base to Ireland from the U.S. is a smart move by Perrigo aimed at reducing its tax liability. Perrigo also stated in its press release that its move to Ireland is also aimed at expanding its international operations.
On completion of the deal, Perrigo’s revenue stream would be boosted as it will receive significant royalties on multiple sclerosis drug Tysabri from Biogen Idec Inc. (BIIB). We remind investors that Elan sold its Tysabri stake to Biogen for $3.25 billion in Apr 2013. Elan currently receives royalties on the drug’s global net sales at the rate of 12%. From May 2014, the royalty rate will climb to 18% on global net sales of the drug up to $2 billion and 25% thereafter. This will benefit Perrigo if the deal materializes.
We note that Perrigo has lately been quite active on the acquisition front. Last month, Perrigo acquired the eye-care portfolio of privately-held Fera Pharmaceuticals for approximately $93 million in cash. On Apr 1, 2013, the company announced that it has completed the acquisition of companion animal health company, Velcera, Inc. for approximately $160 million in cash.
In Feb 2013, the company acquired UK-based Rosemont Pharmaceuticals Ltd. By acquiring Rosemont Pharma, Perrigo has strengthened its position in the UK oral liquid formulations space.
Perrigo carries a Zacks Rank #3 (Hold). Jazz Pharmaceuticals Public Limited Company (JAZZ) appears to be more favorably placed with a Zacks Rank #1 (Strong Buy).
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