DUBLIN/NEW YORK (Reuters) - Elan (>> Elan Corporation, plc) shareholders gave the Irish drug maker a boost in its hopes of fending off a $7.3 billion (4.7 billion pounds) bid from Royalty Pharma when they ignored a plea from the U.S. investment firm to tender stock at a high price at a buyback on Thursday.
Royalty, which sweetened its offer for Elan this week, urged shareholders to "send a message to the Elan board" by tendering all of their stock at $11.75 or $12 to fully benefit from its $12 per share offer.
However Elan said only 4 percent of shares were tendered at Royalty's preferred mark and that it bought back the targeted $1 billion of stock at the bottom of the $11.25 to $13 range, with U.S. drug maker Johnson & Johnson (>> Johnson & Johnson) accounting for 92.3 percent of all shares purchased.
The results of the tender offer appear to indicate that Elan shareholders either believe that Elan CEO Kelly Martin can rebuild the company through acquisitions or that Royalty Pharma will come back with a higher bid, analysts said.
"It's a strong message that the shareholder base of Elan is not thinking about tendering at the $13 level," said Adrian Howd, an analyst at Berenberg Bank.
It might also be good news for Elan that Johnson & Johnson (J&J), which never appeared to be a strategic investor in Elan, has reduced its stake in Elan from 18 percent to 4.9 percent and tendered all its shares, Howd said.
J&J, which said it will make a $213 million gain from the sale, paid $1 billion for its holding in 2009 in a deal that gave both drug makers a 25 percent share in bapineuzumab, an experimental Alzheimer's treatment that failed last year.
"It means that the shareholder base is now more supportive in that the sense that you have more shareholders that care about the shares being above $13 a share," Howd said.
The strike price of $11.25, which retires 14.8 percent of the current shares in issue, means that according to details published by Royalty on Monday, its bid is now pushed back to $11.25, including a net cash right worth up to $1.00.
The New York-based company, targeting royalty rights for multiple sclerosis (MS) treatment Tysabri worth hundreds of millions of dollars annually, made the offer ahead of a May 10 deadline to make a firm bid.
Elan, which rejected Royalty's initial offer of $11 per share for being "highly conditional", plans to reinvent itself through a series of acquisitions after selling its 50 percent interest in Tysabri for $3.
The Dublin-based company, left with just one experimental drug in its pipeline following the Tysabri deal, improved the terms of its own plan last month by offering shareholders up to 20 percent of future royalties from the blockbuster MS drug.
But whether Elan's shareholder will be correct on their bet not to tender at $13 a share remains to be seen. Some analysts agree with Royalty's assessment that Elan's management has little track record in making big acquisitions.
"I don't know why shareholders would not sell out at that level," said Nick Turner, an analyst at Mirabaud Securities.
"Whether they believe they can get a better return out of Elan under current management... that is not an argument that holds water with me."
(Additional reporting by Ransdell Pierson; Editing by Clelia Oziel/Mark Heinrich)
By Padraic Halpin and Jessica Toonkel