Perrigo to buy Irish biotech firm Elan in $8.6bn deal
Michigan-based drugs company takes advantage of Ireland’s 12.5% corporate tax rate
US drugmaker Perrigo has agreed to buy Irish biotech firm Elan in an $ 8.6bn (£5.6bn) deal that will knock millions off the Michigan-based company’s tax bill as it takes advantage of the emerald isle’s corporate tax rate.
Perrigo, which makes over-the-counter medicines and vitamins, said it would make annual savings of more than $ 150m (£98m) in taxes and operating costs by moving its headquarters to Ireland, where corporation tax is 12.5% compared with the US rate of 35%.
Joe Papa, Perrigo chief executive, described the deal as “financially compelling” and said it would mean the combined company would pay a corporate tax rate in “the high teens”.
“We’re excited by what it means for the international expansion. 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.”
The takeover, which gives Perrigo shareholders 71% of the company to Elan’s 29%, shows the appeal of Ireland’s ultra-low corporate tax rates, which have attracted hundreds of foreign companies, including tech giants Apple and Google. Ireland’s tax system came under the microscope of the US Senate in May when lawmakers accused Apple of using subsidiaries, ostensibly based in Ireland, to avoid paying billions to the US Treasury.
Perrigo’s company headquarters will move to Ireland, although shares in the new company are expected to trade on the New York and Tel Aviv stock exchanges. Perrigo has had a Tel Aviv listing since it acquired Israeli-based Agis industries in 2005.
The merger signals a revival of animal spirits in the corporate world after a fallow period for dealmakers following the economic slump. News of the deal helped lift the FTSE 100 in early trading, as investors also digested news of the $ 35bn (£23bn) mega merger between France’s Publicis and America’s Omnicom to create the world’s largest advertising firm.
The Perrigo-Elan tie-up underlines the ease with which companies can acquire a cheaper tax rate. Hundreds of US companies are based in Ireland, where they pay an average tax rate of 8%, according to a report by the US Congressional Budget Office. Perrigo is only the latest to move across the Atlantic, following US pharmaceutical company Actavis, which announced in May that it was buying Dublin-based Warner Chilcott in a $ 8.5bn (£5.6bn) deal that will see the company based in Dublin.
Since it was founded in 1887 by a general store entrepreneur, who sent travelling salesman bearing patent medicines across the American midwest, Perrigo has grown into a global company with 9,500 employees that develops, makes and distributes generic medicines, as well as over-the-counter remedies, diet pills and infant formula.
If the takeover is approved by regulators, Perrigo will reap the benefits of Elan’s blockbuster drug Tysabri, seen as one of the most effective treatments for multiple sclerosis.
Elan, a co-inventor of the drug, earns 12% royalties on Tysabri’s global sales, which were worth $ 1.6bn in 2012 and are expected to grow rapidly, as the drug is taken up in new countries and to treat other diseases.
Tysabri is Elan’s main product, after the company sold off almost all of its drugs after the high-profile failure of experimental Alzheimer’s drug bapineuzumab, which never lived up to hopes it would fight progression of the debilitating brain disease.
The tie-up with Perrigo brings an end to a tumultuous period for Elan, which has fought off three hostile takeover bids from New York-based Royalty Pharma. After the flop of its latest bid that valued Elan at $ 6.7bn, Royalty Pharma announced it was giving up its fight to acquire the company.
Perrigo will pay Elan shareholders $ 6.25 in cash and 0.076 of the new Perrigo company’s stock, per share, in a deal that Elan chairman Robert Ingram described as “an excellent transaction”. Elan shares are valued at $ 16.50 – a premium of 10% on their closing price on 26 July. Barclays and HSBC have put up $ 4.35bn in bridging capital to underwrite the deal.Business: Pharmaceuticals industry | theguardian.com