Perrigo has snatched up Elan ($ELN) for $8.6 billion in a cash-and-stock deal. Call it a case of opposites attracting: U.S.-based Perrigo specializes in cheap, store-brand generics, while Elan is an Irish biotech best know for its longstanding--and now dissolved--partnership with Biogen Idec on the multiple sclerosis drug Tysabri.
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| Perrigo CEO Joseph Papa |
Key to the deal is one thing these companies--along with most of the business world--do have in common. That's a love of lower taxes. Elan profits from the 12.5% corporate tax rates in its home country, and Perrigo plans to take advantage by relocating its nominal headquarters to Ireland. Now based in Allegan, MI, Perrigo figures the move can eventually cut its tax rate to the high teens from about 30% right now, CEO Joseph Papa said in a statement. And that could save more than $150 million, the company said.
Under the agreement, Perrigo would pay Elan shareholders $6.25 per share in cash and another $10.25 in Perrigo stock. The buyout follows months of battling between Elan and Royalty Pharma, which offered to buy Elan for as much as $8 billion. Just as the name implies, Royalty specializes in buying royalty streams, and Elan has a big one, now that it has sold its Tysabri rights to Biogen. In fact, royalties and cash are about all Elan has left, but the company wanted to use that $1.9 billion cash from the Tysabri sale to rebuild via acquisitions. Selling out to Royalty Pharma wasn't part of the plan.
As it fought off the hostile bids, Elan announced that it would entertain more friendly offers. And thanks to that Irish tax rate, a slate of potential bidders reportedly approached, including Forest Laboratories ($FRX), Mylan ($MYL) and Allergan ($AGN).
But it was Perrigo's offer that rose to the top. The company has been growing fast over the last few years via buyouts and a steadily flowing stream of generic products. Perrigo turns out more than 45 billion tablets a year, in fact, and presumably could pump out even more, should the opportunity present itself.
So, the company figures it can use Elan's infrastructure in Europe to expand its own business there, even as it continues moving more branded prescription drugs onto the over-the-counter market. "Through this transaction, Perrigo establishes a diversified platform for further international expansion," Papa said in the statement, adding that the combined company will have "the balance sheet liquidity and operational structure to accelerate our growth."
A few questions remain. Will Perrigo sell off Elan's R&D programs? After all, biotech isn't exactly Perrigo's specialty. And what about those royalties? As bids rolled in, some analysts speculated that Elan's buyer would sell off at least some of its royalty interests, perhaps to Royalty Pharma. That would leave Perrigo with an even bigger store of cash, plus Elan's tax rate and platform for international growth.
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