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Royalty Pharma Submits Formal Cash Offer For Elan Corporation, Plc ("Elan")

Stocks in this article: ELN

NEW YORK, May 2, 2013 /PRNewswire/ -- Echo Pharma Acquisition Limited ("Royalty Pharma") has today issued an offer document dated 2 May 2013 (the "Offer Document").  In the Offer Document, Royalty Pharma confirms the Offer Price set forth in its Rule 2.5 Announcement of 15 April (please see the Offer Document for details).

The Offer Price reflects Elan's (NYSE: ELN) $1 billion Dutch Auction share repurchase (the "Dutch Auction") clearing price of $11.25 per Elan Share, the lowest possible price in the range set by the Elan Board.  Royalty Pharma believes this clearing price validates Royalty Pharma's earlier statement that the Dutch Auction price range was set artificially high.  Of the 22 share repurchases by companies (listed on NYSE or NASDAQ with a market cap above $500 million) that used a Dutch auction process in the last two years, only Elan's Dutch Auction and one other cleared at the bottom of the range.  Eleven of these cleared at the highest price of their respective ranges, eight others cleared at or above the mid-point, and one below the mid-point of their respective ranges.

Notably, Johnson & Johnson ("J&J"), a highly respected pharmaceutical company and Elan's largest shareholder, tendered all its Elan Shares into the Dutch Auction and sold at $11.25, the lowest possible price in the range set by the Elan Board.  Though some may wish to disregard J&J's sale of its Elan Shares as a benchmark for the value of Elan and the royalty on Tysabri held by Elan, Royalty Pharma considers this transaction to be extremely relevant in this regard, particularly given that J&J's investment, at $11.25 per share, was worth $1.2 billion.  J&J's actions speak volumes.

In the past three months, three knowledgeable pharmaceutical companies (Elan, Biogen and J&J) have taken a view on the value of Tysabri, Elan's key asset, in transactions worth billions of dollars.  Royalty Pharma believes that Elan sold approximately half of its economics as well as complete operational control of Tysabri to Biogen for $3.25 billion. Royalty Pharma presumes Elan's management and board concluded that the $3.25 billion price was fair to Elan's shareholders.  Elan's remaining interest in Tysabri, now in the form of a royalty, is Elan's only important asset other than cash.  J&J was clearly willing to accept $11.25, the lowest price in the Dutch Auction, for its Elan Shares and, by implication, the Tysabri Royalty. Royalty Pharma believes that the implied value of the Tysabri Royalty at $11.25 per Elan Share is approximately $3.9 billion.  Royalty Pharma further believes these transactions provide essential valuation benchmarks for the Tysabri Royalty that cannot be ignored.

Royalty Pharma also believes that:

  • the Dutch Auction was an attempt to frustrate Royalty Pharma's Offer –but in the end, all it achieved was to return 92% of the $1billion Dutch Auction proceeds to a single shareholder;
  • Elan shareholders should welcome our Offer, which fairly reflects the underlying value of the Tysabri royalty;
  • the alternative to our Offer is for Elan shareholders to accept the risks of Elan management's "blind pool" acquisition strategy; and
  • absent Royalty Pharma's Offer, the Elan Stock Price will trade well below the Dutch Auction strike price.

Royalty Pharma also takes note of recent multiple sclerosis market trends, specifically slowing net patient additions for Tysabri reported by Biogen for Q1'13, and the strong initial launch of Tecfidera.  Although Royalty Pharma continues to be interested in acquiring Elan, Royalty Pharma is a disciplined financial buyer and is only prepared to offer a price for Elan that reflects the fundamental value of the Tysabri Royalty.

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