Investment firm Royalty Pharma said Monday it offered to buy Elan (ELN) for $6.6 billion last week as it looks to swoop in ahead of the closing of a major drug deal that pocketed the Irish drug maker some $3.25 billion.
The Royalty Pharma bid, at $11 a share, represents a 6.3% premium to Elan’s closing share price on Friday. The suitor said it has already secured more than $1 billion in cash and is working with Bank of America Merrill Lynch (BAC) and J.P. Morgan (JPM) to secure financing.
In regulatory filings, Royalty Pharma insisted the offer reflects the current value of Elan, particularly after Elan agreed earlier this month to sell its interests in its main drug, Tysabri, to U.S. partner Biogen Idec (BIIB) for $3.25 billion.
Elan has said it plans to revitalize sales by using most of the proceeds from the multiple sclerosis drug sale to fund future acquisitions. However, Royalty Pharma believes such a strategy in the highly competitive drug industry is risky and has often led to poor returns, particularly when mixed with what it called a “substantial” lack of earnings visibility.
“Royalty Pharma believes that good assets in the pharmaceutical industry are in short supply, that there will therefore be significant competition for these assets, and that this competition is likely to result in acquirors being required to pay significant premiums to acquire these assets,” the investment firm said in a statement.
Privately-held Royalty Pharma said it first reached out to Elan on Feb. 18 and extended a formal proposal two days later.
On Monday, Elan publicly acknowledged the proposal but questioned the timing, calling it “highly opportunistic” and claiming its shareholders have not had time to fully realize the benefit of the Tysabri sale. Elan said its board and executive management have been working for more than a year on a number of strategic transactions it believes would benefit shareholders.
Royalty Pharma said its “attractive financial alternative” offers shareholders a “simple and clear choice” by allowing them to realize value for their Elan stock in cash immediately and eliminate the risk associated with trying to find and secure acquisitions.
Shares of Elan traded up more than 6% in recent trade to $11.25.