Money Matters - Simplified

Elan's Crash Diet Looks Good

I said Elan (NYSE: ELN) needed a makeover, and the new, thinner company is looking better already.

On Wednesday, the company said it was cutting 14% of its staff. About half of that will come from manufacturing operations in Ireland, with the other half in the U.S. Wasteful spending at the company -- like having offices in Ireland and California, and reportedly using private jets to fly all over the place -- have blemished this comeback kid. Slimming down should help put some cover-up on those missteps.

Elan's Crash Diet Looks GoodGet original file (6KB)

The company expects the cuts to save $30 million to $35 million this year, and $50 million in subsequent years. For a company previously planning on burning through around $250 million this year, that's certainly not chump change. The cuts will give Elan a little more flexibility with its operations.

Of course, the company could be getting all gussied up in an effort to sell itself. Last month, Elan said it was undergoing a "strategic review." Pretty much anything could come out of that, from selling parts of its assets to one of its partners, Biogen Idec (Nasdaq: BIIB) or Wyeth (NYSE: WYE) -- soon to be Pfizer (NYSE: PFE) -- to selling part of the company. The latter move would dilute current shareholders, but would also allow Elan to pay off debt that will be coming due in a couple of years. Just like Biogen's failed attempt to find a buyer, a full sale is probably less likely to happen, since there are a lot of moving parts that any one potential acquirer probably wouldn't be as interested in.

Elan still has a lot of work to do, especially in convincing patients and doctors that multiple sclerosis drug Tysabri still has a good risk/reward profile. But its crash diet, just like the ones under way at Schering-Plough (NYSE: SGP) and GlaxoSmithKline (NYSE: GSK), sure makes the company look more attractive.

Copyright © 2008 Universal Press Syndicate.