Sanofi-Aventis goes hostile with $69/share offer for US biotech company Genzyme

By Greg Keller, AP
Monday, October 4, 2010

Sanofi-Aventis launches Genzyme takeover battle

PARIS — France’s Sanofi-Aventis on Monday launched an $18.5 billion hostile takeover attempt for Genzyme Corp., escalating the battle after the U.S. biotech company’s management twice rejected its offer.

At $69 per share, it’s the same as the friendly bid Paris-based Sanofi-Aventis offered for Genzyme privately in July and publicly in August. Genzyme rejected the offer both times.

Genzyme, based in Cambridge, Mass., urged shareholders Monday to take no action, saying in a press release its board would review the offer, together with its independent consultants, and advise shareholders within 10 business days.

Chris Viehbacher, Sanofi’s chief executive, told analysts and reporters during conference calls he went straight to shareholders because Genzyme management “refused to engage in constructive discussions” despite several attempts by his company.

The acquisition could “unlock value for both sets of shareholders, so I think it would be a real shame to walk away,” Viehbacher said, “but again all options are on the table.”

“Right now, the position of Genzyme is to (have us) put more money on the table, and given the absence of another bidder we’re not” doing that, he said.

Monday’s offer to Genzyme shareholders runs to Dec. 10. Viehbacher said he is “confident the offer will be successful.”

There’s a “pretty high” likelihood of that, said Michael McCaughan, a biopharmaceutical analyst at Concept Capital’s Washington Research Group, which advises institutional investors.

But Les Funtleyder, manager of Miller Tabak’s new Health Care Transformation Fund, sees the chances only as “better than 50-50.”

“It’s going to take a long time, and there’s probably going to be a lot of ink and bloodshed along the way,” with the final price possibly ending up around $75 or $76 a share, he said.

Genzyme would give Sanofi a new platform for growing its biotech business, let it expand into the growing — and lucrative — market for drugs for rare diseases, increase its U.S. presence and give it more experimental drugs in mid- and late-stage testing. Those include three for high cholesterol, a huge global market. And Genzyme has said it is close to resolving manufacturing problems that have limited sales of two key drugs for genetic disorders.

“Genzyme is truly a unique opportunity” to enter the coveted rare disease space, McCaughan said, explaining Sanofi’s persistence. “If you want to buy your way in, there’s really only one way to do it.”

Meanwhile, Sanofi must come up with new revenue as three of its top four products — anticlotting medicines Lovenox and Plavix and cancer drug Taxotere — have new generic competition or are about to get it. That competition will put just more than $10 billion in annual sales at risk.

After Genzyme dismissed Sanofi’s offer for the second time, Viehbacher quietly began courting Genzyme shareholders in September, speaking with owners of roughly half the shares during private meetings in New York.

Asked how the shareholders’ responded, Viehbacher said, “It ranged from, ‘We want a whole lot more (money)’ to ‘Wow! You just made my bonus for the year.’”

Sanofi-Aventis said it has the financing in place for the $18.5 billion deal. While sizable, the hostile takeover attempt is dwarfed by Pfizer Inc.’s $110 billion takeover of Warner-Lambert Co. in 2000 and by the $67 billion 2004 takeover in which Sanofi-Synthelabo acquired Aventis, according to investment bank adviser Dealogic.

Viehbacher wrote Monday to Genzyme CEO Henri Termeer, saying Termeer’s “refusal to engage with us in a constructive manner is denying your shareholders an opportunity to receive a substantial premium, to realize immediate liquidity, and to protect against the risks associated with Genzyme’s business.”

The offer is a 38 percent premium over Genzyme’s share price before speculation over a deal surfaced in July.

In August, Genzyme said the $69 per share offer undervalued the company. Last week, Termeer said a fairer value would be closer to $80, its price before the 2008 financial crisis and the company’s subsequent manufacturing problems.

On Monday, Moody’s Investors Service said it is reviewing some of Sanofi’s short- and long-term debt for possible downgrade because, while the Genzyme acquisition is “strategically sound,” it would boost Sanofi’s debt from about $8.2 billion to almost $29 billion. That’s almost three-fourths of Sanofi’s 2009 revenue of $40 billion.

Genzyme’s drugs for rare genetic disorders are in a hot niche for big pharmaceutical companies trying to diversify beyond blockbuster pills that get slammed by cheaper generic rivals after a decade or so. Genzyme got U.S. approval in May for a new drug for Pompe disease, an often fatal disorder in which limb and respiratory muscles steadily weaken. Its experimental biologic drug for multiple sclerosis is getting an expedited U.S. review.

Genzyme reported a sharp drop in second-quarter profit because of falling sales and charges partly linked to manufacturing problems. Sales of key drugs Cerezyme and Fabrazyme plunged because of viral contamination at its Allston, Mass., factory, causing the company to halt production, eventually shift it to other plants, and pay a $175 million penalty to U.S. regulators.

Johnson reported from Trenton, N.J.

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