Perrigo Agrees To Buy Elan In $8.6 Bln Cash And Stock Deal

(RTTNews) - US-based healthcare products company Perrigo Co. (PRGO) has agreed to acquire Irish biotechnology firm Elan Corp. Plc. (ELN) in a cash and stock transaction valued at about $8.6 billion.

Elan, which recently refused to be acquired by privately-held investment company Royalty Pharma, had initiated a formal sale process last month.

The proposed transaction has been unanimously approved by the boards of directors of both companies. It is expected to close by the end of 2013.

When the deal is complete, Perrigo and Elan will be combined under New Perrigo, a new company incorporated in Ireland. New Perrigo is expected to be called Perrigo Company plc or another variant, and will be led by Perrigo's current leadership team.

As per the agreement, Elan shareholders will receive $6.25 in cash and 0.07636 shares of New Perrigo for each Elan share.

The transaction values each Elan share at $16.50 based on the closing price of Perrigo shares on July 26. This represents a premium of 10.5 percent compared to the closing price of Elan American Depositary Shares on the same day. Net of cash, the transaction is valued at $6.7 billion.

Perrigo shareholders will receive one share of New Perrigo for each share of Perrigo and $0.01 per share in cash. The transaction will be taxable for U.S. federal income tax purposes to both the Elan shareholders and Perrigo shareholders.

Perrigo shareholders are expected to own 71 percent of the combined company while Elan shareholders are expected to own 29 percent. Shares of New Perrigo will be registered with the U.S. Securities and Exchange Commission and are expected to trade on the New York Stock Exchange and the Tel Aviv Stock Exchange.

Elan's current business portfolio includes royalties from multiple sclerosis treatment Tysabri, which is marketed and distributed by Biogen Idec, Inc. (BIIB), along with a neuropsychiatric pipeline that has opportunities for near term value-creation.

Tysabri had a 19 percent compound annual growth rate over the 2008-2012. Elan currently earns a 12 percent royalty on global net sales of Tysabri. From May 1, 2014 onwards, the royalty increases to 18 percent on annual net sales up to $2.0 billion, and to 25 percent on annual net sales above this amount.

Perrigo believes that the Tysabri cash flows are highly sustainable with multiple barriers to entry. There will be additional upside if Tysabri is approved for secondary progressive multiple sclerosis.

The deal will provide the companies with a firm platform to expand internationally, while having a strong business and revenue profile.

The transaction is expected to lead to over $150 million of recurring after-tax annual operating expense and tax savings by eliminating some public company costs while optimizing back-office support and the global R&D functions.

Perrigo has secured $4.35 billion in fully underwritten bridge financing commitments from Barclays and HSBC Bank USA, N.A.. The company plans to refinance and repay the bridge borrowings through new debt issuances and the use of Elan cash on hand.

PRGO closed at $134.23 on Friday.

ELN settled at $14.93. The stock, which surged close to 9 percent in early morning trade in Dublin, is currently marginally higher at 11.14 euros.