Genzyme continues to spurn offer as sanofi-aventis goes hostile

French company’s efforts to acquire Genzyme take on a new character as it goes from relatively friendly acquisition talks to hostile takeover attempt—but Genzyme still says “no” to $69-per-share offer price and recommends shareholders do the same

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PARIS—So, French pharma giant sanofi-aventis has made an overture of $69 per share—or about $18.5 billion—for the acquisition of Cambridge, Mass.-based Genzyme. In turn, Genzyme has rejected that price as significantly understating its value to sanofi should it become part of the French company…

…Sound familiar?

No, we're not repeating old news. Because there is a new spin: Now the relatively cordial courting by sanofi has moved into hostile takeover territory as sanofi pitches the $69-per-share offer to the shareholders themselves in an attempt to gain control of the company or force the executives and board of Genzyme to come to the table on its terms.

The shift came on Oct. 7, and sanofi has placed a Dec. 10 deadline for Geznyme to accept or decline the offer. Continuing with the stance it has held since the whole process began in summer, Genzyme rejected the bid as being too low that very same day.

"The offer price does not adequately compensate Genzyme's shareholders for the strategic importance and financial benefit to sanofi-aventis of a potential transaction with Genzyme," the Cambridge-based company said in a statement.

As sanofi has reiterated, in an attempt to woo shareholders, the $69 offer price represents a 38 percent  premium over Genzyme's share price in early July, which is when the rumors regarding sanofi's intention to acquire Genzyme starting making the rounds. Since that time, though, Genzyme's shares have shot up more than 40 percent, Zacks Investment Research noted on Oct. 7 in an analyst note. In fact, even with ups and downs over the months, Genzyme shares have consistently traded above sanofi's price since the acquisition talks began.

For its part, sanofi has said that it launched the hostile bid mainly due to Genzyme management's refusal to enter into constructive discussions with Sanofi, with the company having officially approached Genzyme with its $69-per-share offer on July 29, which Genzyme rejected Aug. 11. This was followed by a second offer letter on Aug. 29, which was once again rejected by Genzyme. Genzyme's board of directors called the offer "unrealistic," stating that the offer price undervalues the company.

As Zacks notes, sanofi then approached several shareholders at Genzyme and entered into another meeting with Genzyme management on Sept. 20, which "also proved to be unproductive resulting in Sanofi taking its offer directly to the shareholders. Sanofi said that shareholders owning more than 50 percent of Genzyme's outstanding shares were disappointed with Genzyme's refusal to enter into constructive discussions."

Chris Viehbacher, sanofi-aventis' CEO, has said that because of the feedback from those investors, he is confident that sanofi will win out in this tug-of-war.

Throughout the entire process, the two companies and various market watchers and analysts have talked of prices ranging from $69 to $80 per share, but sanofi has been unwilling to move from the low end of that spectrum, saying that it needs more detailed information about Genzyme to justify raising its price, particularly since there are no rival bidders with which to compete.

Some unnamed sources have told media outlets that GlaxoSmithKline, Pfizer and Johnson & Johnson have all expressed interest in acquiring the company, but at least one of those companies, GSK, seems to be out of the running—unlesss it's operating in a serious cloak-and-dagger mode. Moncef Slaoui, the British pharma's head of research and development, told French newspaper Les Echos in early September, "An offer by GlaxoSmithKline for Genzyme does not make sense. It is too expensive."

In an interview on CNBC recently, Viehbacher said the $69 per share offer "fully values" Genzyme, and openly questions why sanofi-aventis should raise it. "There's no one else bidding and there's no new information," he said, "So you can hardly expect us to bid against ourselves."

But if shareholders don't budge in sufficient numbers to give sanofi the edge it needs to take over, it may very well have to bend to the opinion of many market watchers that an offer close to $80 than to $70 will be needed to seal this deal. Zacks believes that a deal can be struck in the mid-70s.

As Zacks notes in its analysis, sanofi-aventis needs a deal like this, saying, "With this acquisition, sanofi is looking to create a new source of growth" and adding that the company has "a high exposure to generic risk on many of its leading franchises."

"The company suffered a blow recently with the entry of a generic version of its anti-coagulant Lovenox, which was a major contributor to the top-line with 2009 sales," Zacks notes, and adds that Lovenox accounted for 10.4 percent of total sales in 2009.

"In addition to Lovenox, we see generic risk to other products as well. The next wave of generic erosion could occur soon with Taxotere losing exclusivity. Avapro sales will be at risk following the August 2012 European patent expiration," Zacks reports. "In such a scenario, it is imperative for sanofi to successfully develop and launch new products in order to make up for the loss of revenues once major products lose exclusivity and start facing generic competition. The acquisition of Genzyme would boost sanofi's revenues as well as its pipeline."

On the other hand, while the acquisition of Genzyme would allow sanofi to increase its presence in the biopharmaceutical market, Zacks also notes that Genzyme's performance has been hampered by manufacturing issues since June 2009.

"The company is currently operating under a consent decree imposed by the U.S. Food and Drug Administration (FDA) and is working on resuming normal supply of the products that were affected by manufacturing issues. Genzyme could incur additional costs in case of non-compliance with the terms of the consent decree," Zacks says. "In addition to the manufacturing issues, Genzyme's key product Cerezyme is facing additional competition in the form of Shire's Vpriv. Further competition could come in the form of Protalix BioTherapeutics Inc.'s Uplyso which could gain approval in Feb 2011."

(We recently ruminated a little about the latest sanofi/Genzyme news at our ddn Online blog, which you can reach by clicking here, and we welcome any comments you might want to share there on the matter.)

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