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Catalent to explore options after Elliott deal-sources

View of the drug product manufacturing laboratory in biologics and sterile injectables, Catalent, in Brussels

(This August 28 story has been refiled to correct the spelling of Elliott in the headline)

By Svea Herbst-Bayliss and Maggie Fick

(Reuters) - Catalent Inc is close to reaching a settlement with activist investor Elliott Investment Management which will include new directors and a pledge to review strategic alternatives such as a sale of the company, sources familiar with the matter said on Monday.

The company, which has been the target of takeover interest from both private equity firms and strategic buyers for months, is poised to agree to add four new directors proposed by Elliott to its board, which currently has 12 members, the sources said.

The sources declined to be identified because the information is confidential and cautioned a deal could still collapse at the last minute.

Spokespeople for Catalent and Elliott declined to comment.

Catalent's stock price jumped 8% in after-hours trading before giving up some of the gains after closing at $45.65 on Monday.

The U.S.-based contract drugmaker is also Danish company Novo Nordisk's main manufacturing partner for its popular weight-loss drug Wegovy. The volatility at Catalent could increase scrutiny on the relationship between Novo and its partner.

Catalent's deal with Elliott also makes the hedge fund an indirect player in the story of Wegovy, the first-to-market in a new class of highly effective weight-loss drugs. Some analysts have predicted a $100 billion market by 2030.

Reuters reported last week that a second Catalent factory will begin filling Wegovy injection pens for Novo as part of an expanded supply agreement. Novo is spending billions of dollars to make more of the obesity drug amid sky-rocketing demand, particularly in the United States.

When asked on Friday by Reuters about Catalent's issues, Novo's CEO said he was confident the company would resolve its problems.

Novo shares were down 0.65% at 1109 GMT but remained on track for a gain of 17% in August, their largest monthly increase since February 2014.

Novo declined to comment on the news.

Novo shareholder Markus Manns, a portfolio manager at Union Investment in Germany, told Reuters on Tuesday that as long as Catalent is able to keep making Wegovy for Novo, he was unconcerned by the developments with Elliott.

The settlement deal would allow Elliott, one of the industry's busiest activist investors, to help sway Catalent's strategy at a time its stocks price has lost roughly half of its value in the last year.

Earlier this year, Danaher, which on Monday agreed to acquire Abcam, was reported as a possible suitor.

CRITICAL ROLE

Catalent, which is valued at roughly $8 billion and played a critical role during the pandemic to fill vials with the COVID-19 vaccine for several companies including AstraZeneca, Johnson & Johnson and Moderna, has grappled with a variety of problems recently.

Its chief financial officer left in April, when the company warned "productivity issues" and higher-than-expected costs at three of its manufacturing sites would hit fiscal 2023 results.

Catalent also warned in June when it released thrice-delayed quarterly earnings that the corrective actions it was undertaking to address quality control lapses identified by U.S. drug regulators at its Brussels factory required more time to fix.

The Brussels plant began filling Wegovy injection pens in 2021 but problems there caused a supply shortage in the U.S. throughout 2022.

The company is scheduled to report quarterly earnings before the U.S. market opens on Tuesday.

In the past when Elliott has pushed for sales of pieces or the entire target company, including at eBay and Switch Inc., and then won board representation, significant ownership changes have followed. Sell side analysts, including Deutsche Bank, note that Danaher, which is valued at $193 billion, has untapped M&A capacity even after buying Abcam.

Elliott isn't the only activist investor that had bought into Catalent this year, with regulatory filings showing that Keith Meister's Corvex Management and Scott Ferguson's Sachem Head Capital Management owned shares in the company at the end of the second quarter.

Despite Catalent's operational and regulatory problems, several investors said there is value in the company given its role in meeting big pharma companies' demand for outsourced manufacturing.

Elliott this year pushed for changes at cloud computing company Salesforce where a proxy fight was averted when the company announced better returns and a host of measures to cut costs. It is also pushing to oust NRG CEO Mauricio Gutierrez.

(Reporting by Svea Herbst-Bayliss in Boston and Maggie Fick in London; Additional reporting by Amanda Cooper in London; Editing by Shri Navaratnam, Bernadette Baum and Catherine Evans)