Recent Genzyme actions may set it up well for sanofi acquisition

Plan by sanofi-aventis to acquire Genzyme far from a done deal, but recent layoff announcements and a unit sale may bode well both for an acquisition and a price increase from sanofi

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CAMBRIDGE, Mass.—As the M&A back-and-forth between sanofi-aventis and Genzyme Corp. continues—with the former standing firm on its $69-per-share offer and the latter saying it's worth way more—the acquisition dance has become more of a stand-off. So far, sanofi is only threatening a hostile takeover, but the two companies are definitely in a staring contest at the moment, and it's unclear who will blink first, or if both parties will simply walk away in the end and go their own directions.

But the In Vivo Blog chimed in recently with some interesting thoughts on the matter, with Alex Lash writing that "Genzyme's sale of its genetic testing unit to Lab Corp. for $925 million [combined with] 1,000 layoffs at the big bio, the spinout of the unit—at a price 30% to 40% higher than at least one analyst expected—could be a big step toward getting Genzyme ready for a sale. It comes a year and a half after serious manufacturing problems at a Boston-area plant were first disclosed in early 2009, an event that opened top executives to criticism from tub-thumping shareholders."

Speaking about the sale of the Genzyme Genetics unit, and echoing some of Lash's thoughts, Geoffrey Porges, an analyst with Sanford Bernstein & Co., told Bloomberg that sanofi may now feel pressures by the sale of the unit to increase the amount of its offer to acquire Genzyme. "Genzyme is making it clear they're not sitting around waiting for Sanofi to raise their bid," he said.

However, Jean-Marc Podvin, a Paris-based spokesman for sanofi, told Bloomberg, "Our offer to acquire Genzyme for $69 a share in cash remains unchanged," and sanofi-aventis' CEO, Chris Viehbacher, made it clear in an Aug. 30 conference call that the Genzyme Genetics unit wasn't a major focus in the acquisition bid.

Also still in play, as Genzyme continues with a "business as usual" demeanor, are the planned sales of two other Genzyme business units: diagnostics and pharmaceutical intermediates.

That prompted Michael Yee, an analyst with RBC Capital Markets, to note in a report Sept. 13 that sanofi's bid for Genzyme may rise "into the low $70s," adding that sales of the diagnostics and pharmaceuticals units could generate a combined $1.3 billion.

In a Sept. 21 presentation to investors, Michael Wyzga, Genzyme's chief financial officer, announced that six bidders have lined up with interest in acquiring the pharmaceutical ingredients unit, adding that Genzyme expects to complete a sale of that business, as well as its diagnostics unit, by the end of the year.

"The sale of the genetics business, combined with the planned sale of the diagnostics and pharmaceutical intermediaries units, don't automatically point Genzyme toward M&A," Lash notes at the In Vivo Blog, but the sale of the genetic unit and probably sale of the other two units "would make for a cleaner eventual acquisition of Genzyme..."

In the end, the staring contest continues, and some have gone farther than RBS's Yee, saying an offer of around $75 per share may be necessary to get Genzyme to budge. But it could be a while before we know, one way or the other. As Viehbacher has said publicly, "I don't think [Genzyme is] in a hurry and neither are we in hurry. I don't see anybody else coming into the deal, so that's not pushing anybody in terms of speed."

(To find links to some of our other online coverage of the sanofi-aventi/Genzyme story, as well as vote in our poll about the possible acquisition or takeover, click here to visit the "Genzyme vs. sanofi-aventis: Who's Asking for Too Much?" post on our ddn Online blog.)

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