After months of fighting off the advances of unwanted suitor Royalty Pharma, Irish biotech Elan Corporation, plc (ADR) (NYSE:ELN) finally got an offer it couldn’t refuse — from drugmaker Perrigo Company (NYSE:PRGO) .
Stating his belief that the union of Perrigo Company (NYSE:PRGO) and Elan Corporation, plc (ADR) (NYSE:ELN) would create an industry-leading health care company with the financial wherewithal to grow and capitalize on international opportunities, Perrigo Company (NYSE:PRGO) Chairman and CEO Joseph C. Papa said, “We believe this transaction is compelling for Elan Corporation, plc (ADR) (NYSE:ELN) shareholders and fully takes into account the value of Elan’s assets, including a large cash balance and a double-digit royalty claim on Tysabri, a blockbuster product that generated revenues of $1.6 billion last year and has been growing at a compound annual growth rate of 19%.”
The transaction has been unanimously approved by the boards of directors of both companies and is expected to close by the end of 2013. It is subject to regulatory approval and needs approval from shareholders.
Perrigo Company (NYSE:PRGO) and Elan would combine into a new company incorporated in Ireland, which is expected to be called Perrigo Company plc or something close to that, but will be led by Perrigo Company (NYSE:PRGO)’s current management team. Perrigo, which has been headquartered in the small western Michigan town of Allegan since 1887, said it would move its tax residence to Ireland and hopes to cut its tax liabilities nearly in half as it grows non-U.S. sales.
Under the terms of the agreement, Elan shareholders will receive $6.25 in cash and 0.07636 shares of the new Perrigo Company (NYSE:PRGO) company for each share of Elan they own. The transaction values Elan at approximately $8.6 billion based on Perrigo’s closing share price on July 26, or net of cash, at $6.7 billion.
Elan Chairman Robert A. Ingram said, “This is an excellent transaction for Elan shareholders and provides them with cash consideration as well as the opportunity to benefit from the potential upside value of the new company. Joe Papa and his team have demonstrated exceptional capability and delivery of results in building a premier health care company over the past number of years. We have the confidence in Joe and his leadership team to continue to grow and expand its presence on a global scale.”
Royalty had made three bids for Elan, each one of which was rejected as being too low. By incorporating the new Perrigo in Ireland, it will gain significant tax advantages for doing so, cutting its effective tax rate to 17% in the first 12 to 18 months from around 30% now, according to a Reuters report.
The combination is expected to result in more than $150 million of recurring after-tax annual operating expense and tax savings.
Perrigo is already the largest maker of generic drugs for major retail chains in the United States, including Walgreen Company (NYSE:WAG) and Wal-Mart Stores, Inc. (NYSE:WMT). It has rapidly expanded overseas since 2005 with acquisitions in Israel, Britain, Mexico and Australia.
— Material from The Associated Press was used in this report.
The article Perrigo to Buy Elan for $8.6 Billion originally appeared on Fool.com and is written by Rich Duprey.
Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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