Elan is planning a $550 million buyback of its shares, as it is facing a $1 billion call at the end of the year on a bond issue floated in 1998, say analysts in the U.S.
After a Wall Street Journal article earlier this year questioned its accounting practices, the pharmaceutical giant has been struggling to rebuild investor confidence, as well as trying to pay off a large bond debt.
Investors have an option explained to reporters as something called a “poison put,” which allows them to redeem bonds through a cash payment on the first option date.
Buying back the shares would allow Elan to meet the $1 billion debt with cash or shares.
Also, according to analysts, buying back the shares at their current depressed price would save the company money if the price recovers.
Besides, reducing the number of shares in issue would also improve the earnings-per-share ratio, increasing overall financial performance. Whether the reforms will rebuild investor confidence remains to be seen.
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Other major Elan assets will be sold off this year, as the company has said it needs to make product acquisitions to boost revenue growth.
The company’s share price tumbled by 80 percent after the Journal article said that Elan’s accounting practices were questionable.
Coming on the heels of the collapse of energy giant Enron, Elan took a heavy beating on the markets and had its credibility as a premium-listed share damaged.
Meanwhile, investors in the U.S. filed two class-action suits accusing the company of misleading them, and seeking damages. The Securities and Exchange Commission is still investigating the company.
An Elan spokesperson refused to comment on the reforms. There was further speculation that the company would also seek to make its board look more impressive as well. Apart from chairman and chief executive Donal Geaney and executive deputy chairman Tom Lynch, most of the board members are long-standing non-executive directors.