Thank goodness. After months of soap-opera rumors, including potential deals with Pfizer
Apparently Johnson & Johnson
Johnson & Johnson is investing $1 billion in Elan in exchange for an 18.4% stake in the company. That works out to $9.32 per share -- considerably higher than yesterday's close, but Elan traded above $37 per share a year ago, so the dilution is coming at a tough price for investors.
The other part of the deal involves Johnson & Johnson setting up a joint venture seeded with Elan's Alzheimer's disease program, including its phase 3 candidate, bapineuzumab, which is partnered with Wyeth
So Elan gets an infusion of cash and lowers its burn rate for the next few years until the $500 million is used up, which it desperately needed to do, considering it has over $1.76 billion in debt.
But it's also giving up a lot. As any third-grader can tell you, half of a half is a quarter, and that's now how much of bapineuzumab Elan owns. Considering the drug's multi-billion-dollar potential, going down to a 25% stake could be a big mistake.
And that's the ironic part about this. If bapineuzumab fails, Elan's management will look like geniuses, but, if it succeeds, the tight spot they worked the company into that led to these less-than-favorable terms will come back to bite them.
Elan is a Motley Fool Rule Breakers selection. Pfizer is an Inside Value recommendation. Johnson & Johnson is an Income Investor pick. Novartis is a Global Gains selection. Whether you like your companies big or small, dividend-laden or with multibagger written all over them, we've got a newsletter for you.