Leading Irish Company Hit By Accounting Revelations

by Jason Gorringe, Tax-News.com, London

06 February 2002

Until last week Ireland's most valuable company, pharmaceuticals firm Elan saw its shares collapse in New York and Dublin after admitting that off-balance sheet vehicles had been used to bolster reported earnings. The company said reported earnings per share after charges of $0.97 under US accounting rules would have been only $0.59 if the two vehicles had been included.

By the close in New York on Monday, Elan's shares had fallen 50% to $14.85, and on Tuesday they continued to slide to $13.80 after two US law firms said they would sue the company for allegedly defrauding investors. In Dublin Elan's shares continued to slide yesterday, closing €3.50 lower at €16. In January they touched a high of €50.27.

Elan's share price has also been hit by the admission that late product launches and higher development costs would lead to earnings this year around 30% below analysts' forecasts. "This is an unmitigated disaster," said David Maris, analyst at CSFB in Boston. "After you go through all the adjustments, we are not even sure if they made any money last year."

Donal Geaney, Elan chairman and chief executive, said "Elan is confident that its accounting and business practices can stand up to any scrutiny." Mr Geaney said US accounting rules required the group not to disclose on its balance sheet the two financing vehicles, which contained around $1bn of assets. They were outlined in the annual report which used Irish rules.

In London, UBS Warburg described Elan's news as "negative in the short term" but said increased accounting visibility gave investors "some hope that, over the next several years, the company can be more accurately valued based on the value of its drug portfolio". In Dublin, some dealers said most of the bad news was probably now priced into the share price and speculated that there could be a bounce in coming days.

"But in the post-Enron environment the company has a lot of work to do to build credibility. At times like this, where transparency and visibility are at a premium, investors focus their microscopes on companies like this," commented one trader to the Irish Times.

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