Sanofi Bid for Genzyme Bid May Need to Be Higher Than $80 to Win Investors

Sanofi-Aventis SA may have to pay at least $80 a share, or $21.3 billion, to acquire genetic-disease drugmaker Genzyme Corp. as activist directors drive up the price, investors in the U.S. biotechnology company say.

Sanofi Chief Executive Officer Chris Viehbacher has support from his board to offer as much as $70 a share, or about $18.7 billion, and is preparing a formal offer letter for Genzyme, according to three people familiar with the situation who declined to be named because the deliberations are private.

Activist Ralph Whitworth of Relational Investors LLC., Genzyme’s second-biggest holder, began buying the stock in the third quarter of 2008, when it traded as high as $83.25. Whitworth, and Carl C. Icahn, the third-largest shareholder, gained four of 13 board seats this year in compromises brokered with Genzyme to avoid a proxy battle.

“Relational is looking at this, they’re saying, we’ve owned this a while, we owned it in the 80s, why would we sell?” said Sachin Shah, a merger arbitrage specialist at Capstone Global Markets in New York, in a telephone interview. “The only reason would be if they believe they can get full value.”

The shares of Cambridge, Massachusetts-based Genzyme fell 23 cents to close at $69.56 on July 30. Genzyme’s stock plunged 26 percent last year after a plant shutdown caused drug shortages. Sanofi declined 25 cents to 44.57 euros at the close of trading in Paris on July 30.

Whitworth’s Stake

Relational Investors bought 1.3 million shares in the third quarter of 2008, according to a regulatory filing. The fund added another 1.4 million shares in the following quarter, when shares traded as high as $80.33. Relational held 10.6 million shares as of June 16, according to a regulatory filing.

Whitworth joined the board in April, with an option to name another director. His pick, Dennis Fenton, a former head of operations and manufacturing at Amgen Inc., the largest U.S. biotechnology company, was appointed to the board in June.

Icahn bought 1.45 million shares in the company in the third quarter of 2009, when the stock traded as high as $58.24. Icahn had 13.1 million shares as of March 31. Icahn associates Steven Burakoff and Eric Ende became directors in June.

“Icahn is going to come out and demand a special committee” to put the company up for sale as soon as Sanofi’s letter arrives, Shah said.

Icahn didn’t return calls for comment. Whitworth declined to comment, referring questions to Genzyme. Bo Piela, a Genzyme spokesman, and Jean-Marc Podvin, a Sanofi spokesman, declined to comment.

Not for Sale

Genzyme CEO Henri Termeer said in a June 14 interview that the company wasn’t for sale. It is focused on fixing manufacturing defects that cut into sales of its biggest products, Termeer said. He is seeking to revive the drugmaker after sales slumped 2 percent to $4.5 billion last year, following a virus contamination at Genzyme’s Allston Landing factory in Boston.

“$80 was the valuation in 2008, before the manufacturing issues, and without those issues it would be trading there now,” said Sven Borho, a partner with Orbimed Advisors, holder of about 2.5 million Genzyme shares. “This hasn’t been a great year and you can’t base a valuation on it. The growth rate in 2011 could easily be 20 percent or more, and that’s one of the highest growth rates in biotech.”

Generic Competition

Viehbacher is counting on takeovers to help replace revenue it will lose as its medicines face competition from lower-priced generic drugs. Sanofi, based in Paris, cut its 2010 earnings forecast on July 26 after U.S. regulators approved a generic rival to its Lovenox blood thinner.

Genzyme, the world’s largest maker of medicines for rare genetic disorders, sells products less likely to face generic competitors because its treatments made from living cells are harder to copy than traditional pills made from chemical compounds, said Joshua Schimmer, an analyst for Leerink Swann & Co. in New York, in a July 30 research report. Additionally, acquiring Genzyme would provide Sanofi an entrance to drugs for rare diseases, Schimmer wrote.

Icahn was chairman of ImClone Systems Inc. in 2008 when Eli Lilly & Co. agreed to buy the New York-based biotechnology firm for 73 percent premium over the average share price in the 30 days before the deal was announced, Schimmer said.

In a similar biotechnology deal, AstraZeneca Plc, of London, agreed to acquire MedImmune Inc. in 2007 at a 70 percent premium, based on the 30-day average price before it was announced, Schimmer said.

In May, Japanese drugmaker Astellas Pharma Inc. agreed to buy OSI Pharmaceuticals Inc., a maker of biotechnology drugs for cancer, for a 68 percent premium over the average share price in the 30 days before the deal was announced, Schimmer said.

52 Percent Premium

Genzyme’s average closing price was $52.75 in the month before an offer by Sanofi was first reported on July 23, according to Bloomberg data. An offer of $80-a-share would represent a 52 percent premium.

“We believe the board of Genzyme will push for a sale, but is unlikely to recommend an offer below $80 a share,” said Genzyme investor Amit Shabi, a partner at Bernheim, Dreyfus & Co. in Paris.

To contact the reporter on this story: Elizabeth Lopatto in New York at elopatto@bloomberg.net.

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