UPDATE 1-U.S. drugmaker Perrigo to buy Ireland's Elan for $8.6 bln
* Perrigo to pay $6.25 per share in cash, $10.25 in stock
* Deal to cut U.S. firm's effective tax rate to "high teens"
* Forest Laboratories had also been in contention
DUBLIN, July 29 (Reuters) - U.S. generic drugmaker Perrigo agreed to buy fellow drug company Elan for $8.6 billion on Monday in a deal that will hand it royalty rights from a blockbuster treatment and tax savings from being domiciled in Ireland.
Elan put itself up for sale last month after rejecting three hostile bids from U.S. investment firm Royalty Pharma in a bitter takeover battle that involved injunctions, court hearings and a war of words.
Michigan-based Perrigo, which manufactures over-the-counter pharmaceutical products for the store brand market, will pay $6.25 per share in cash and $10.25 per share in stock, a premium of about 10.5 percent over Elan's closing price on Friday.
"We're excited by what it means for the international expansion. We think it's financially compelling and when you put it together with an Irish domicile that has operational tax synergies, we think it's a really compelling story," Perrigo Chief Executive Joe Papa told Reuters in a telephone interview.
Elan is especially appealing for companies like Perrigo that can easily move their headquarters abroad because of the very low 12.5 percent corporate tax rate in Ireland, compared to 35 percent in the United States.
Papa said the deal meant that Perrigo - which will fund the deal using $4.35 billion in bridge financing from Barclays and HSBC plus cash - would lower its effective tax rate to the high teens from around 30 percent currently.
Reuters reported exclusively last week that Perrigo and New York-based Forest Laboratories Inc were preparing to submit takeover bids and that Elan hoped to announce a sale as early as this week.