The resolution of the Elan Corp. plc Dutch tender offer sets the stage for a final showdown with RP Management LC over the revenue streams of Elan's multiple sclerosis drug.

Earlier this month, Elan closed the sale of its Tysabri drug to Biogen Idec Inc. for $3.25 billion plus a share of future revenues. Elan, led by CEO Kelly Martin, intends to use proceeds of the sale to invest in new pharmaceutical opportunities. RP Management, or Royal Pharma, has had an alternative offer outstanding for all of Elan.

To deliver some capital back to shareholders, Elan launched a $1 billion share buyback through a Dutch tender offer at between $11.25 and $13 per share. Elan said Thursday that the ultimate price of the tender offer came in at $11.25, the low end of the range, and it retired shares at that price on a prorated basis.

Johnson & Johnson, which owned about 18% of Elan, tendered at the $11.25 price and had its stake reduced to roughly 4% through the offer for a gain of $213 million.

Elan, which has been fending off the Royalty Pharma approach, noted that J&J accounted for 92% of the shares tendered at the $11.25 price. Elan also said 6% of shares were tendered at prices below $12 and 16% above that price, and that 73% of shares were not tendered at any price up to the $13 cap for the Dutch auction.

A Dutch auction pits shareholders against each other as they must bid lower than each other in order to place their shares at a price at which the company will ultimately buy them back.

There are different ways to read the results of the Elan offer.

Elan would say that many shareholders held back from the Dutch auction because they see longer-term value in the company's strategy to redeploy the proceeds from the Tysabri divestiture and so refrained from tendering at $13. Elan has also said it would pay out up to 20% of Tysabri revenues to shareholders.

The pharma investors in Elan knew that J&J was going to soak up the bulk of the $1 billion offer at the low end and held back, a risk arbitrageur said.

Royalty Pharma had a proposal outstanding since Monday to buy in shares in a range tied to how the Dutch tender offer played out. Under that proposal, the company, which invests in drug revenue streams, would buy in the remaining Elan shares without preconditions at $11.25, the ultimate price of the Dutch tender. That offer could be reduced by $1 in a contingent payout based on Elan's affirmation of the capital it retains on its books.

Royalty Pharma now has 28 days from making its offer to file formal documents and 60 days from then to close the offer, based on Irish takeover rules.

That J&J, a sophisticated pharmaceutical investor, sold on the low end of the tender range is a no-confidence vote in Elan's strategy to reinvest its Tysabri capital, a source said.

Royalty Pharma now has to make a best and final offer, an arb said. The tiered bid prior to the close of the Dutch tender offer may have been designed to frustrate that effort, he said. (Tendering at $13 would have translated to a lower offer from Royalty Pharma.) But Royalty Pharma probably knew that $11.25 was going to be the strike price in the Dutch auction, he said. The bidder presumably has more than that and maybe arbs get $12 or more with a contingent value right that would be attractive because it would be tied to established revenue streams of Tysabri in excess of the Elan proposal, the arb said.

Elan shares traded up slightly to $11.90.