The merger, expected to close in the third quarter of calendar 2011, is worth approximately $960 million. The merged entity will be known as Alkermes plc and will be headquartered in Dublin, Ireland.
The deal, expected to boost Alkermes’ cash earnings immediately following its closure, has been cleared by the board of directors of both companies. Morgan Stanley & Co. (MS) and HSBC (HBC) have agreed to finance up to $450 million of the deal through term loans to Alkermes.
Per the terms of the deal, Alkermes will make a cash payment of $500 million apart from giving Elan 31.9 million of its ordinary shares. Elan will have a 25% stake in the combined company whose shares will be registered in the US. The merged entity is expected to trade on the NASDAQ stock exchange.
We believe that the transaction is a positive for both companies. Following the divestment, Elan will focus solely on its BioNeurology segment which focuses on neurodegenerative diseases. The segment is driven by Tysabri, which is approved for the treatment of multiple sclerosis and Crohn’s disease. The drug is being co-developed with Biogen Idec. (BIIB). Moreover, the deal will strengthen the balance sheet at Elan.
The deal is a huge positive for Alkermes since its product portfolio will be strengthened with the addition of Ampyra. Ampyra has been developed by Acorda Therapeutics Inc. (ACOR), which has a supply agreement with Elan for the manufacturing of the drug.
The merged entity will primarily focus on developing therapies for treating deficiencies of the central nervous system. It will boast of a diversified product portfolio (with 25 marketed products) and a robust pipeline.
Apart from announcing the deal, management provided guidance regarding the expected financials of the merged entity. Management stated that the merged entity would have had adjusted revenues of approximately $450 million on March 31, 2011 (on a trailing 12-month basis).
Adjusted revenues are expected to grow in fiscal 2012. Adjusted revenues of the combined company are expected to grow in double digits from fiscal 2013. The deal is expected to result in synergies of approximately $20 million annually to US operations. The cost savings are expected to be entirely realized by fiscal 2013.
Neutral on Alkermes and Elan
Currently we have Neutral recommendations for both Alkermes and Elan in the long-run. Both companies carry a Zacks #3 Rank (Hold rating) in the short-run.
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