Elan Corporation Turnaround Case Study Analysis
Elan Corporation was in Dublin in the year 1969, with the purpose of helping the large pharmaceutical organizations during the development of the drugs delivery system. In the year 1981; Elan Corporation started to expand its business globally, and opened its subsidiary in Georgia, US. After this expansion; Elan Corporation thought of going public, for which the company listed itself in three main stock exchanges for trading, which were: stock exchanges – London, New York and Dublin (Shein, 2010).
The relationship began with the newly appointed interim CEO, GaroArmen, who discussed the concerning issues that were being faced bythe pharmaceutical company:“Elan Corporation”, in Ireland. Following the allegations of accounting fraud; the share price fell by 96 percent, and the major clinical trial was halted due to serious side effects of the drug. As a result of which, Elanwent bankrupt. About $ 2 billion of debt was due, whichcouldn’t have been paid in shares, and the stockholders became doubtful of the company’s capital structure, which seemed to have further failure.
Furthermore, Armen is concerned about the ethical consequences of social failures and is therefore unable to develop life-saving drugs. Armenia has to decide what strategies the company should adopt. In Ireland, Elan State has significant international business operations, which are making the operational and financial problems more complex.
Probability and Assessment of Solvency
The score Model – Altman has been computed through utilizing the information provided in Exhibit 1 and Exhibit 2 of the case study. The Altman Z Score Calculations are shown in excel file and the results are attached in Exhibit1 of the document, which shows that the probability of Elan Corporation becoming insolvent is very high, with the Z score of 0.09. The Z score 0.09 is lying in the distressed zone of the Z score Model – Altman, which shows the high chances of the Elan Corporation to collapse in next two years. The Z score value of 0.09, shows that the business at this time, is suffering from financial problems and it is indicating towards the higher chances of the business going bankrupt in upcoming years.
Investors in these types of situation, avoid to make any kind of investment in a company, as a result of which, the stock price of a company starts falling, which has similarly happened as the this company, as its 96 percent of the share price has reduced in recent months (from 45.06 US dollars to 1.8024 US dollars). The Altman Z score is considered to be a very authentic tool, because it is calculated by using the five financial ratios from the company’s audited financial reports, which are filled by the company at stock exchange commission website. (SEC).
Armen’s Decision for Recovery
There are two options suggested by the Armen, in order to recover the Elan Corporation’s current situation. The current situation of the corporation indicates that it is heading towards bankruptcy, and there are chances that by following either of the both suggested options by Armen; the company might recover. These two option are:
- Elan Corporation should emphasize on its research and development.
- Elan Corporation should emphasize on its products’ advertising and socializing…………………………..
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