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Elan Rejects Royalty Offer Again

Zacks Equity Research

Elan Corporation’s (ELN) Board of Directors recently rejected Royalty Pharma’s offer for the third time. Following a thorough review and consideration process, with the assistance of its executive management team along with outside financial and legal advisors, the company concluded that Royalty Pharma’s last offer also substantially undervalued Elan. After arriving at the decision, Elan’s management advised its shareholders not to act on Royalty Pharma’s offer.

Earlier this week Royalty Pharma raised its offer to acquire all shares of Elan to $12.50 per share from $11.25 per share. Royalty Pharma’s raised offer did not include the $1.00 per share net cash right, present in the previous offer. Royalty Pharma also announced that it will reduce the Acceptance Threshold from 90% to 50% of Maximum Elan Shares Affected plus one Elan share in accordance with the terms of the revised offer document.

We remind investors that Royalty Pharma’s previous two offers of $11.00 per share and $11.25 per share were also rejected by Elan’s Board.

We believe investor focus will remain on Elan’s recently announced strategic initiatives going forward. Elan has planned a couple of acquisitions in addition to divestment of its pipeline candidate ELND005 (agitation/aggression in Alzheimer’s disease and Downs Syndrome), and the company also intends to initiate a cash repurchase program among other transactions. However, these transactions will go through upon approval from Elan’s shareholders after the company’s Extraordinary General Meeting in June this year.

Of late Elan was also in the news when it inked a deal with Theravance Inc. (THRX) to purchase a participation interest in potential future royalty payments for a one-time cash payment of $1.0 billion. Elan is expected to receive a 21% participation interest in potential future royalty payments that Theravance would likely to receive from GlaxoSmithKline (GSK) from four respiratory programs.

Elan presently carries a Zacks Rank #2 (Buy). Jazz Pharmaceuticals Public Limited Company (JAZZ) currently looks better positioned with a Zacks Rank #1 (Strong Buy).

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