The action by Sanofi trumped the bid of Czech Republic-based PPF by more than 10 percent and sparked speculation that the two companies might now begin a bidding war for Zentiva, which has a dominant position in the generics market in the Czech Republic and Slovakia.
The markets appeared to agree with the notion that a bidding war will ensue, as on the day Sanofi made its bid, Zentiva shares rose to nearly CZK 1,100—higher than both offers on the table. Zentiva management may also be expecting one or both companies to up the ante, as it urged its shareholders to take no action on the Sanofi bid for the time being.
Both PPF and Sanofi already own a sizable portion of Zentiva. PPF bought in roughly three years ago and owns just over 19 percent of the company, while Sanofi's share in the company is just shy of 25 percent.
Commenting in a Reuters story on the proposed offer by Sanofi, Milan Vanicek, an analyst with Czech stock dealer Atlantik FT, thinks PPF won't be inclined to accept the Sanofi offer for its shares.
"If you look at for how much PPF bought their stake, that bid still seems too low," Vanicek says, noting that PPF made its investment in Zentiva in 2005 at 1,025, only slightly lower than the Sanofi offer.
For its part, Sanofi, may be looking to Zentiva as part of a broader strategy to even out its revenue stream.
"Sanofi-aventis is already established in the various markets where Zentiva operates. The intended acquisition of the control of Zentiva carries a strong strategic rationale," the company noted in a public statement announcing its bid.
While it did not disclose exactly what the strategic rationale is, it's not hard to speculate that Sanofi may be looking to the generics market to diversify its business and insulate it somewhat from declining revenue in its core business.
"Sanofi doesn't really have much right now in terms of its generics arm," says Bram Buring, at Czech-based investment banking firm Wood & Co. in a report published on Bloomberg.com "This might signify that they are truly interested in building their generics business."
That wouldn't make it the first large pharmaceutical company to take that approach. Sanofi's bid came only a week after Tokyo-based pharma Daiichi Sankyo announced its intent to buy a controlling stake in Indian generics company Ranbaxy for $4.6 billion.
A Sanofi spokesperson noted in published reports that the company expected the acquisition of Zentiva to be accretive to earnings from the first year of the integration, despite recent earnings disappointments.
PPF officials were said to be mulling a higher offer, something that seemed more likely at press time, as on Monday investment firm J&T, holder of a 7.2 percent stake in Zentiva, said it would not accept PPF's original bid.