Perrigo Company, a leading global provider of quality, affordable healthcare products (Perrigo) and Elan Corporation, plc (Elan), a leading biotechnology company headquartered in Ireland, announced that, following a formal sale process conducted by Elan, Perrigo and Elan have entered into a definitive agreement (the “Transaction Agreement”) under which Elan will be acquired by a new holding company incorporated in Ireland (New Perrigo). The cash and stock transaction, which is valued at approximately US$8.6 billion based on the closing price of Perrigo shares on 26 July 2013 (US$6.7 billion excluding Elan’s cash on hand), will create a global healthcare company with an industry-leading growth profile and the geographic scale and scope to continue building a truly differentiated business.
“Through this transaction, Perrigo establishes a diversified platform for further international expansion,” stated Perrigo chairman and CEO, Joseph C. Papa. “We believe this transaction is compelling for Elan 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 US$1.6 billion last year and has been growing at a compound annual growth rate of 19%. We believe the combination of Perrigo and Elan will create an industry-leading global healthcare company with the balance sheet liquidity and operational structure to accelerate our growth and capitalize on international market opportunities.”
Robert A. Ingram, chairman of Elan, commented, “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 healthcare 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.”
Additionally, Elan CEO G. Kelly Martin, said, “The Elan platform has been constructed over the years to provide a unique and compelling investment thesis for our shareholders. This transaction underscores the tremendous value of Elan's platform. The new combined company should deliver value, growth and diversification to shareholders for many years to come.”
The proposed transaction, which has been unanimously approved by the respective boards of directors of Perrigo and Elan, is expected to close by the end of calendar year 2013. At the close of the transaction, Perrigo and Elan will be combined under New Perrigo, a new company incorporated in Ireland, where Elan is incorporated today. New Perrigo, which is expected to be called Perrigo Company plc or a variant thereof, will be led by Perrigo’s current leadership team.
Elan’s current business portfolio includes royalties from Multiple Sclerosis (MS) treatment Tysabri (marketed and distributed by Biogen Idec, Inc.), along with a neuropsychiatric pipeline with near term value-creating opportunities. Tysabri had a 19% compound annual growth rate over the 2008–2012 period. Elan currently earns a 12% royalty on global net sales of Tysabri. From 1 May 2014 onwards, the royalty increases to 18% on annual net sales up to US$2.0 billion, and to 25% on annual net sales above this amount. The Tysabri cash flows are highly sustainable with multiple barriers to entry, analogous to the fundamentals of Perrigo’s core business. Further upside exists if Tysabri is approved for Secondary Progressive MS.
Under the terms of the Transaction Agreement, at the closing of the acquisition, Elan shareholders will receive US$6.25 in cash and 0.07636 shares of New Perrigo for each Elan share. The transaction values each Elan share at US$16.50 based on the closing price of Perrigo shares on 26 July 2013, which represents a premium of approximately 10.5% compared to the closing price of Elan American Depositary Shares on 26 July 2013, the last trading day prior to the date of this announcement. The transaction values the entire share capital of Elan at approximately US$8.6 billion based on Perrigo’s closing share price on 26 July 2013. Net of cash, the transaction is valued at US$6.7 billion. Perrigo shareholders will receive one share of New Perrigo for each share of Perrigo that they own upon closing and US$0.01 per share in cash. The transaction will be taxable, for U.S. federal income tax purposes, to both the Elan shareholders and the Perrigo shareholders.
Immediately after the closing of the transaction, Perrigo shareholders are expected to own approximately 71% of the combined company while Elan shareholders are expected to own approximately 29%. Shares of New Perrigo will be registered with the US. Securities and Exchange Commission (the SEC) and are expected to trade on the New York Stock Exchange and the Tel Aviv Stock Exchange.
The combination is expected to result in more than US$150 million of recurring after-tax annual operating expense and tax savings. Certain of these synergies result from the elimination of redundant public company costs while optimizing back-office support and the global R&D functions. Additionally, tax savings are expected to arise from the combined company being incorporated in Ireland with organizational, operations and capitalization structures that will enable the combined company to more efficiently manage its global cash and treasury operations.
Papa concluded, “We are very impressed with the accomplishments of Elan’s leadership team. Over the past decades, they have built a company that delivers high quality healthcare products with a focus on innovations in science to fill significant unmet medical needs around the world. This strategic transaction aligns with Perrigo’s acquisition strategy and our previously-stated intentions to grow our international business. We expect New Perrigo to create tremendous value for our shareholders for years to come.”
Perrigo has secured an aggregate amount of US$4.35 billion in fully underwritten bridge financing commitments from Barclays and HSBC Bank USA, N.A., which, in addition to Perrigo cash on hand, are available to finance the cash portion of the transaction, pay fees and expenses related to the transaction and refinance Perrigo’s existing indebtedness including its current term loan, private placement notes and existing public bonds. Perrigo plans to refinance and repay the bridge borrowings through new debt issuances and the use of Elan cash on hand.
The combination is subject to the terms of the Transaction Agreement among Perrigo, Elan, New Perrigo and certain other parties. The acquisition of Elan by New Perrigo will be effected by means of a “scheme of arrangement” (the Scheme) under Irish law pursuant to which New Perrigo will acquire all of the outstanding shares of Elan from Elan shareholders for cash and shares (the Acquisition). The Acquisition will be subject to the terms and conditions to be set forth in the Scheme document to be delivered to Elan shareholders. To become effective, the Scheme will require, among other things, the approval at a meeting convened pursuant to an order of the Irish High Court (the Court Meeting) of a majority in number of Elan shareholders, present and voting either in person or by proxy, representing 75% or more in value of the Elan shares held by such holders as well as the approval by Elan shareholders of resolutions relating to the implementation of the Scheme at an extraordinary general meeting to be held directly after the Court Meeting. Following the requisite Elan shareholder approval being obtained, the sanction of the Irish High Court is also required for the Scheme to become effective. In addition, the Transaction Agreement must be approved by Perrigo shareholders at a special shareholders meeting to be convened by Perrigo. The Acquisition, which is unanimously recommended by the respective boards of directors of both companies, also is subject to receipt of certain regulatory approvals and certain other conditions, as more particularly set out in Appendix I to this announcement.