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The biotech recently announced plans to repurchase $1 billion worth of shares through a Dutch auction. As part of the auction, investors are given the option to sell their shares back to the company at a price between $11.25 and $13.00, specified by the shareholder. Elan would then buy back shares at the lowest price that allows it to purchase shares worth $1 billion in aggregate.
Royalty Pharma has tied its offer to the price Elan ends up paying at the Dutch offering. It'll pay the same amount as shareholders were given if the offer is for $11.25 or $11.50. If shareholders demand $11.75 or $12, Royalty Pharma is willing to pay $12 per share for the remaining share of Elan. If shareholders demand more than $12, Royalty Pharma is willing to pay only $11 per share, presumably because it believes at that level Elan is overpaying to buy back its shares.
Royalty Pharma also put a $1-per-share clause in the offer because it doesn't know exactly how much net cash Elan has. If the deal goes through, Elan can confirm that its balance sheet meets the requirements or Royalty Pharma will reduce the offer by $1 per share and pay all or some of that $1 through a net cash right, once it takes control.
Elan acknowledged Royalty Pharma's press release and said it would consider the offer but didn't hint at whether the increase was good enough.