Elan eyes M&A with Tysabri windfall

Shares in Elan Corp are on the rise this morning after the Irish drugmaker unveiled plans to return $1 billion to stockholders, following the sale of its stake in the multiple sclerosis blockbuster Tysabri to partner Biogen Idec.

Earlier this month, the companies restructured their pact on Tysabri (natalizumab), which gives Biogen full ownership and control of the drug. In return, Elan will receive $3.25 billion upfront and healthy royalties. Since the deal was announced, observers have been speculating as to what Elan plans to do with the cash and chief executive Kelly Martin acknowledged that “understandably, many market participants are looking forward to further clarity around how we intend to deploy the significant upfront payment”.

First up, the firm will institute a share repurchase programme by using $1 billion of the proceeds, which Mr Martin says “enables a significant portion of the unlocked value of Tysabri to be returned to shareholders directly”. He noted that the cash payment from Biogen “will have little to no tax burden and part of our objective is to enable shareholders to benefit directly from that structural advantage”.
Mr Martin added that Elan will refinance its outstanding $600 million debt and also invest the Biogen cash “into a variety of business assets”. He said that “we have spent significant time evaluating assets around the world and establishing relationships that might ultimately lead to constructive strategic transactions”.

In response to the announcement, Deutsche Bank analyst Richard Parkes issued a research note saying that his firm welcome the share buyback “and see potential for significant value to be unlocked for existing shareholders as management executes”. However, he added that “close to 40% of Elan’s current market cap could be invested in as yet unknown assets and as such we are unlikely to gain the visibility needed to become constructive on the shares until transactions are concluded”.

Jack Gorman at Irish broker Davy said the announcement “would imply that there is a body of M&A work already well underway”, adding that “the cash pile and the prospect of debt refinancing mean that Elan will retain a lot of financial flexibility”