Royalty Management LLC (Royalty Pharma) announced its proposal to acquired Elan Corporation, plc (NYSE:ELN) for approximately $6.5 billion or $11 per share. The proposed acquisition price represents a 12 percent premium of Elan’s market price based on the closing price of its stock at $10.35 a share on Feb. 25 on the New York Stock Exchange.

Elan Corporation

According to Royalty Pharma, its proposal to acquire Elan Corporation, plc (NYSE:ELN) would prevent the company and its shareholders from taking substantial risks in reinvesting the $3.5 billion proceeds it will receive from selling its interests in Tysabri from Biogen Idec Inc. (NASDAQ:BIIB).

Elan Corporation, plc (NYSE:ELN) recently announced that it will reinvest a portion of the $3.25 billion proceeds from its deal with Biogen Idec Inc. (NASDAQ:BIIB) by acquiring different types of assets and refinance its outstanding debt. The drug manufacturer also plans to implement a $1 billion repurchase program to return the unlocked value of Tysabri to shareholders.

In a press release, Royalty Pharma it did not receive any formal response regarding its proposal from Elan Corporation, plc (NYSE:ELN) and failed to engage in a discussion with the drug manufacturer.

The investor said it was surprised with Elan Corporation’s announcement in implementing its strategy without mentioning the buyout proposal it received from Royalty Pharma.

Royalty Pharma emphasized that Elan Corporation’s acquisition and in-licensing strategy is risky and lacks earnings visibility citing that the pharmaceutical industry is highly competitive and good assets are in short supply. According to the investor, many pharmaceutical companies suffered poor returns by pursuing the same strategies, which Elan plans to execute.

In addition, Royalty Pharma noted the senior management team of Elan Corporation, plc (NYSE:ELN) “does not have a track record of generating attractive returns from acquisitions or in-licensed products for Elan.”

According to the investor, Elan’s management has not made any acquisitions or in-licensed any significant late stage products for the drug manufacturer. The investor believes that Elan’s additional investments in acquisition or in-licenses will only depress its net income and cash flow.

Today, Elan Corporation, plc (NYSE:ELN) issued a press statement acknowledging Royalty Pharma’s offer and noted that the timing of the proposal was “highly opportunistic.”

The company pointed out that Royal Pharma made its offer before the shareholders of the drug maker have the opportunity to asses and realize the full benefit of its Tysabri transaction and the partial unlocking of its value.

In a statement, Elan Corporation also noted that Royalty Pharma’s proposal is “heavily conditional.” Furthermore, the company said it will consider any credible proposal from Royalty Pharma or any ant other third party alongside its strategic transactions and investment plans.

Olav Zilian, analyst at Helve SA in Geneva reduced its rating for the stock of Elan Corporation, plc (NYSE:ELN). He opined, “The conservative investors will say let’s tender the shares because of the uncertainty about what management will do with the cash. It’s still open as to where the cash will be reinvested and shareholders possibly have no say in that.”