Elan Corp. plc found itself at the mercy of Johnson & Johnson earlier this month after an unfavorable judicial ruling. And J&J took advantage by shaving $115 million off of an agreement to acquire 18% of Dublin-based Elan for $1 billion.

The haircut came courtesy of Cambridge, Mass.-based Biogen Idec Inc., which sued in U.S. District Court in New York to challenge the joint venture that J&J and Elan announced July 2. Under that deal, J&J agreed to pay $1 billion for an 18.4% stake in Elan and take over its Alzheimer's research effort in exchange for a further $500 million of funding. At $9.32 per Elan share, the initial deal came at a 33% premium to Elan's July 1 close; the revised agreement is worth about $8.25 per Elan share.

On a July 21 earnings call, Elan CEO Kelly Martin said that the deal also gave J&J an option to help finance a buyout of Biogen's 50% stake in the multiple sclerosis drug Tysabri if Biogen itself were acquired. Elan and Biogen share the rights to the drug, and their own JV agreement provides that if one of the companies is acquired, the other may buy out its half of the JV at a "fair" price, which could be as much as $2 billion. Biogen claimed that Elan would transfer that right under its agreement with J&J, thus voiding the Biogen-Elan agreement and giving Biogen the full rights to Tysabri.

Charles Gilman, one of Elan's lawyers at Cahill Gordon & Reindel LLP, blamed the dispute on Carl Icahn, who has been pushing for a sale of Biogen since 2007. "In a nine-year collaboration, there has never been a notice of breach until Carl Icahn took an investment position in Biogen," Gilman told Deborah Batts, the judge in the case, at a Sept. 3 hearing.

But the Icahn defense proved unavailing. Instead, Batts found for Biogen and gave Elan until Sept. 26 to fix the problem. The Sept. 15 drop-dead date on the J&J-Elan deal meant that Elan had 12 days to reach a solution, which it emphatically desired to do. In a press release that day, Elan said it was "committed to working with Johnson & Johnson to close the transaction as quickly as possible, consistent with the Biogen-Elan Tysabri Collaboration Agreement."

After all, as Gilman said on Sept. 3, Elan would be "toast" if it lost both the Tysabri and J&J's funding. That gave J&J the leverage to extract a significant price cut.

The move recalled J&J's aggressive behavior in its 2005 agreement to buy Guidant Corp. for $25.4 billion. After a man died when a Guidant defibrillator failed, J&J claimed that the target had suffered a material adverse change and extracted a 17% price cut. Boston Scientific Corp. seized the opening and won Guidant with an unsolicited bid that topped J&J's revised offer.

Michael Gruenglas of Skadden, Arps, Slate, Meagher & Flom LLP led the Biogen Idec litigation team. In addition to Gilman, Elan used Cahill's Christopher Cox and John Papachristos on the J&J deal along with Julian Yarr of Irish law firm A&L Goodbody. On the banking side, Elan used a team from Citigroup Inc. led by Chris Hite and including Dave Magstadt, Joseph Mooney, Mark Shafir and Bill White.

J&J used its own deal team, led by Tom Heyman and Patrick Verheyen. For legal advice the company turned to Arthur Cox attorneys Geoff Moore and Brian O'Gorman. The company also tapped George Zobitz (pictured) and Damien Zoubek of longtime legal adviser Cravath, Swaine & Moore LLP, with Steven Newborn and John Sipple Jr. of Weil, Gotshal & Manges LLP on antitrust.