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Elan Goes To Perrigo

Pharmaceuticals: Buyer’s strategy hinges on big tax cushion in Ireland

by Rick Mullin
August 1, 2013 | A version of this story appeared in Volume 91, Issue 31

Credit: Shutterstock
Dublin, Ireland, is home to a growing number of drugmakers.
Photo of Dublin, Ireland.
Credit: Shutterstock
Dublin, Ireland, is home to a growing number of drugmakers.

Perrigo, a U.S.-based manufacturer of over-the-counter and generic drugs, will acquire the Irish drugmaker Elan in a stock and cash deal valued at $8.6 billion—and then the firm will move to Ireland. The deal is the latest by a drug firm seeking to take advantage of low corporate taxes in that country, which was battered by the global recession.

Elan had been fending off an unwanted suitor, Royalty Pharma, an acquirer of drug royalties, for five months. Royalty’s highest bid, $7.3 billion, was recently rebuffed.

Perrigo CEO Joseph C. Papa says the new deal works because it is a good fit for Elan and it positions his firm for further international expansion. “We believe this transaction is compelling for Elan shareholders and fully takes into account the value of Elan’s assets, including a large cash balance and a double-digit royalty claim on Tysabri,” Papa says. Elan sold rights to Tysabri, a multiple sclerosis drug, to Biogen Idec in February for $3.2 billion plus ­royalties.

Just as important, analysts say, are the tax benefits of setting up in Ireland, which has a 12.5% corporate tax rate, versus as high as 35% in the U.S. By acquiring Elan and moving its headquarters to Ireland, Perrigo expects annual after-tax operating expense and tax savings of $150 million.

The deal was announced in the same week that President Barack Obama stumped for his proposal to lower the corporate tax rate in the U.S. to 28%.

Adefemi Adenuga, a health care analyst at London-based GlobalData, says the tax break provided by a move to Ireland may help Perrigo expand and diversify internationally. “This acquisition highlights the benefits of setting up base in Ireland and may provide a tempting template for future pharmaceutical investment activity,” he says.

Other firms have worked from the same template. Actavis will lower its tax base this year by setting up in Ireland following its $5 billion deal to acquire Warner Chilcott. And Alkermes took advantage of Ireland’s low tax rate in 2011 by incorporating in the country following its acquisition of Elan’s chemical formulation and manufacturing assets for $960 million.



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