Elan introduces new cash dividend policy for shareholders

Linked to recent restructuring of Tysabri deal with Biogen Idec, the move may be in part to ward off acquisition efforts by Royalty Pharma

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DUBLIN—In what might be a bid to help dissuade Elan Corp. shareholders from considering any future takeover offers by Royalty Pharma, which recently announced its interest in acquiring Elan, the board of directors of Elan on March 4 approved a decision "to initiate a unique cashdividend policy enabling its shareholders to benefit directly from thelong term cash flow generated by Tysabri." (for more on the restructuring of Elan's Tysabri deal with Biogen Idec Inc. and other corporate moves recently, see this story.)
According to Elan, the dividend program will be directly linked to Tysabri marketperformance calculated as a percentage of the Tysabri royalty paid toElan from Biogen Idec as a result of the recently announced Tysabrirestructuring. The initial percentage to be paid out directly toshareholders is 20 percent of those royalties.
There is no cap to the dividend cash payments that will be generatedfrom this direct link between shareholders' equity and the long termcash flow of Tysabri, Elan reports, adding that "This dividend structure gives shareholders theright to enjoy unlimited participation in the upside from the Tysabrisales increase which we anticipate for the future."
Elan expects to pay these cash dividends to its shareholders intwice-yearly installments. The first dividend would likely be paid inthe fourth quarter of 2013, subject to the closing of the recentlyannounced Tysabri restructuring. Payment of the dividends will be madein accordance with applicable law, including, where applicable,shareholder approval.
"As announced on Feb. 6, therestructuring of the Tysabri collaboration with Biogen Idec enables us,upon close, to unlock value to the direct benefit of our publicshareholders," said Elan CEO Kelly Martin. "These value creation initiatives consist of three relatedbut distinctive components: a $1 billion share repurchaseprogram, a highly efficient cash dividend that directly linksshareholders to the long-term performance and cash flow generation ofTysabri and lastly, the addition of specific business assets which willallow for diversification across molecules, therapeutic areas andgeographies."
According to the restructured Tysabri collaboration, Elan will receive12-percent royalties on in-market sales of Tysabri in the first year fromclosing and thereafter 18-percent royalties on in-market sales up to $2billion, and 25-percent royalties on sales exceeding $2 billion. In 2012, thein-market sales of Tysabri were $1.6 billion.
Speaking of the new cash dividend policy, its benefits to shareholders and what it suggests about Elan's ability to stand on its own—but making no mention of Royalty Pharma—Martin said, "This provides Elan and our shareholderssignificant near- and longer-term benefits. We continue to make tangibleprogress on a variety of corporate development discussions and otherstrategic developments and anticipate providing further clarity to themarketplace in the coming days and weeks."

In an interview with Reuters, Martin dismissed speculation that this recent announcement was directly related to Royalty Pharma, despite the timing.
"We simply don't view the Royalty indication of interest as credible," he told Reuters. "The vastmajority of our investor base simply don't view Royalty's indication asworthy of any discussion, period. I wish Royaltywell, they can do what they need to do but we're not in any discussions withthem at all on any topic and we don't see any need to have thosediscussions." 

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