Genzyme and sanofi-aventis engaging in direct talks about acquisition

There is apparently still a lot of ground to cover and still miles to go before the executives sleep, but both companies have sent official representatives into mutual talks to see if there is a way to honor Genzyme’s perceived value and sanofi’s opinion of an appropriate per-share price

Jeffrey Bouley
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CAMBRIDGE, Mass.—Reminding everyone that Paris-based Big Pharma company sanofi-aventis still wants Genzyme Corp., the two companies have noted that they are now talking officially about the acquisition.

More specifically, Jan. 10 saw an official announcement from Genzyme that not only have discussions been continuing between the financial advisors for both companies for some time, but now actual representatives from both companies are involved. That news immediately sent Genzyme shares up 3 percent, which one might consider a blow to sanofi, which has stood firm on the same bid for months and refused to budge, but sources are saying the French company may not be as rigid on that point as it once was.

So, you might ask: Is Genzyme coming to a realization that no other white knight-style suitors are likely to show up or is sanofi-aventis realizing it will have to come up off the $69-per-share number it hasn't budged on so far (about $18.5 billion in total) to seal the deal?

So far, neither side has admitted to blinking, so the answer on that is hazy—though likely a little of both. However, the discussions have, according to Genzyme, "focused on potential terms for a negotiated transaction and have included the possible use of a contingent value right relating to blood cancer drug alemtuzumab [Campath, which Genzyme also wants to market as a multiple sclerosis treatment under brand name Lemtrada] as part of any potential resolution of differences with respect to value." Reuters, Bloomberg and other media sources have noted that sources close to the deal think the $69 figure is edging upward at least slightly. Those sources were also saying no hard numbers were on the table as of Jan. 10.

The commercial potential of Lemtrada is one point of contention between the companies, as is the length of time it will take to resolve some Genzyme manufacturing problems that date back to June 2009.

Theoretically, given the direction of things right now, sanofi-aventis might work out a deal structure known as a contingent value right (CVR), which would give Genzyme shareholders a chance to reap additional payouts if Campath were to be approved for multiple sclerosis and meet certain revenue targets. Genzyme thinks the Lemtrada version of alemtuzumab could hit peak annual sales of around $3.5 billion, though sources have indicated that $700 million is more what sanofi thinks is likely.

In any case, sanofi released a statement saying that there remained "significant differences on the terms and conditions of the potential CVR and the value of our offer" and added there was no guarantee they would reach an agreement.

"A CVR would appear to be the best possible solution for the two parties that would enable them to bring these talks to a satisfactory conclusion," wrote CM-CIC Securities analyst Arsene Guekam in a note about the acquisition, with Bank Sarasin analyst David Kaegi adding in his own note that a CVR would likely bring another $5 to $8 per share, depending on market approval of Lemtrada and the meeting of certain sales targets.

"Once the parties agree on this issue, sanofi may get finally access to Genzyme's books by raising its offer by an additional $1 to $2 per share," Kaegi notes. "It seems quite probable that a deal will be finally reached because no white knight has stepped up for Genzyme so far."

Jeffrey Bouley

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