UPDATED: Perrigo targets Ireland tax perks in $8.6B Elan buyout

Kelly Martin

The wild chase for Elan ($ELN) appears to be over. Perrigo ($PRGO), a U.S. maker of over-the-counter and generic drugs, has emerged with a winning bid to acquire the Irish biotech outfit for a deal valued at $16.50 per share in cash and stock. The boards of both companies have approved the buyout, which Perrigo expects to complete by the end of the year.

Elan's future has been up in the air for months. In June the company launched a sales process while fending off one of the unsolicited bids from Royalty Pharma, a group that specializes in purchases royalty streams on drugs, which pursued Elan for four months. Elan CEO Kelly Martin prevailed in keeping his company out of the clutches of Royalty, which was eager to own his company's royalty rights on the blockbuster multiple sclerosis drug Tysabri.

Perrigo has risen from a list of potential buyers noted in recent months. The Allegan, MI-based company is paying an 11% premium on the closing price of Elan shares on Friday. Its deal gives Elan shareholders $6.25 in cash and .07636 shares of the new Perrigo company after the buyout. Including the cash from Elan, the deal is worth $8.6 billion.

Through the deal, Perrigo plans to become an Irish company and benefit from the 12.5% corporate tax rate. The company expects to reap $150 million in annual operating and tax savings from the acquisition of Elan. For its part, Elan has been essentially a shell with some remaining assets after selling its stake in Tysabri to Biogen Idec ($BIIB) for $3.25 billion in February. The company also had to rethink its future after the big Phase III failure last year of its Alzheimer's drug bapineuzumab, derailing hopes for a major new income stream for the Ireland-based drugmaker.

"A lower tax rate could put it in a much stronger position to grow inorganically going forward," Ami Fadia, a UBS analyst, wrote in a note to investors, as quoted by Bloomberg.

Perrigo drew some early criticism from commentators, including TheStreet's Adam Feuerstein, for its move to lower its taxes. The company has joined a list of U.S. biotech and pharma groups to take advantage of tax havens such as Ireland, and their controversial actions made them targets for media and political types.

However, stock analysts and company executives generally applaud the tax advantages as positive developments for shareholders, and Reuters reported that Perrigo stands to lower its tax rate from 30% to around 17% after buying Elan.

"We think it's financially compelling and when you put it together with an Irish domicile that has operational tax synergies, we think it's a really compelling story," Perrigo CEO Joseph Papa told the news service.

- here's Perrigo's release
- see the Bloomberg article
- and the New York Times' report
- check out Reuters' article