Elan and Royalty Pharma
In June 2013, Elan’s shareholders (Elan Corporation, NYSE: ELN) were faced with a difficult choice. Elan’s management had four proposals on the table, management’s attempt to defend itself against a hostile takeover from Royalty Pharma. Royalty Pharma was a private company, a private equity-owned collector of biotech and pharmaceutical royalties. If shareholders voted in favor of any of the four initiatives, it would likely kill Royalty Pharma’s offer—and its guaranteed returns. That would allow Elan to stay independent, and remain under the control of a management team generally considered as underperforming.
This case has been used in both MBA and Executive Education programs to examine the process and valuation of potential acquisitions and the basic use of discounted cash flow analysis. The case allows a narrowly defined valuation debate using traditional discounted cash flow valuation techniques, combined with a wider scope of corporate strategy and future value creation.