ALLEGAN (WWJ) — The Allegan generic and store-brand health products maker Perrigo Co. announced early Monday that it would acquire Dublin, Ireland-based Elan Corp. plc for $8.6 billion (5.6 billion pounds).
Under the transaction, Elan will be acquired by a new holding company incorporated in Ireland — called, for now, New Perrigo.
However, Perrigo officials say the company’s headquarters and executive team will remain in Allegan, a city of 5,000 located about halfway between Kalamazoo and Holland. Perrigo has about 3,500 employees in Allegan, roughly 1,000 corporate headquarters employees and about 2,500 plant positions, according to John T. Hendrickson, executive vice president of global operations at the company.
The proposed transaction 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 Co. plc or a variant thereof, will be led by Perrigo’s current leadership team.
In a news conference, Hendrickson said the deal would have no effect on Perrigo’s $300 million in expansions in Allegan and Holland, scheduled to add 650 new jobs over the next two years.
Perrigo chairman and CEO Joseph C. Papa said in a statement: “Through this transaction, Perrigo establishes a diversified platform for further international expansion. 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 $1.6 billion last year and has been growing at a compound annual growth rate of 19 percent. 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.”
After the transaction, Perrigo shareholders are expected to own 71 percent of New Perrigo and Elan shareholders 29 percent.
According to England’s Guardian newspaper, “The deal ends a bitter takeover saga in which Elan rejected three hostile bids by US investment firm Royalty Pharma amid injunctions, court hearings and a war of words before putting itself up for sale last month.” http://www.guardian.co.uk/business/2013/jul/29/us-drugmaker-perrigo-buy-elan
The deal has been unanimously approved by both companies’ boards.
Added Elan chairman Robert A. Ingram: “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.”
Elan’s current business portfolio includes royalties from the multiple sclerosis treatment Tysabri (marketed and distributed by Biogen Idec Inc.), along with a neuropsychiatric pipeline with near term value-creating opportunities. Elan currently earns a 12 percent royalty on global net sales of Tysabri. Beginning May 1, the royalty increases to 18 percent on annual net sales up to $2 billion, and to 25 percent on 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 deal, 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 a share based on the closing price of Perrigo shares July 26, which represents a premium of 10.5 percent on the price of Elan American Depositary Shares July 26. The transaction values the entire share capital of Elan at $8.6 billion based on Perrigo’s closing share price on 26 July 2013. 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 that they own upon closing and 1 cent 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.
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.
The combination is expected to result in more than $150 million of recurring after-tax annual operating expense and tax savings. The company said there would be cuts to redundant costs of maintaining two publicly traded companies, along with cuts in back-office support and global research and development. The company will also save money with Ireland’s lower corporate tax rate.
Perrigo said it had secured $4.35 billion in financing 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.
Besides shareholder approval, the deal also requires approval from the Irish High Court and U.S. regulatory authorities.
Perrigo was established as a packager of home remedies in 1887 in Allegan. Today it’s a the world’s largest manufacturer of over-the-counter pharmaceutical products for the store brand market. It also develops, manufactures and distributes generic prescription pharmaceuticals, infant formulas, nutritional products, animal health, dietary supplements and active pharmaceutical ingredients. It’s primary markets are the United States, Israel, Mexico, the United Kingdom, India, China and Australia.
More at http://www.perrigo.com.