Sanofi Better Smart as Options Lower Genzyme’s Price: Real M&A
Sanofi-Aventis CEO Chris Viehbacher
David Maxwell/Bloomberg
Sanofi-Aventis SA’s Chief Executive Officer Chris Viehbacher has spent more than $8 billion on takeovers since starting two years ago.
Sanofi-Aventis SA’s Chief Executive Officer Chris Viehbacher has spent more than $8 billion on takeovers since starting two years ago. Photographer: David Maxwell/Bloomberg
Jan. 26 (Bloomberg) -- Chris Viehbacher, chief executive officer of Sanofi-Aventis SA, discusses his company's takeover talks with Genzyme Corp. Sanofi, based in Paris, two days ago extended its takeover offer for Genzyme a second time, giving France's biggest drugmaker more time to reach an agreement with the U.S. biotechnology company. The $18.5 billion offer is now set to expire on Feb. 15. Viehbacher speaks in Davos, Switzerland. (Source: Bloomberg)
Options contracts on Genzyme Corp.’s multiple sclerosis drug would decrease Sanofi-Aventis SA’s cost by as much as $1.6 billion in a takeover of the world’s largest maker of treatments for rare genetic diseases.
Sanofi may offer $76 to $77 a share in cash and options, people with knowledge of the discussions, who declined to be identified because the matter is private, said this week. While the companies are still negotiating, Sanofi has sought to pay $71 in cash and issue contingent value rights, or payments tied to sales of Genzyme’s experimental drug Lemtrada, of about $5 to $6 a share, one person said. Genzyme wants a higher cash payment up front and a smaller CVR, the person said. If the drug fails to win regulatory approval, the options would be worthless.
The CVRs would enable Sanofi to purchase Genzyme for $18.4 billion, a 52 percent discount to comparable biotechnology deals based on Genzyme’s estimated earnings, according to data compiled by Bloomberg. With Paris-based Sanofi facing a loss of patent protections and three years of falling profit, Chief Executive Officer Chris Viehbacher has spent more than $8 billion on takeovers since starting two years ago. The stock has still lagged behind health-care rivals in Europe.
“It’s a creative tactic for Sanofi,” said Michael Holland, who oversees more than $4 billion as chairman of New York-based Holland & Co. and was a general partner at private equity firm Blackstone Group LP. With CVRs, they also “protect themselves against the uncertainty of their drug performance in case things don’t go well. If all goes well, everyone comes out a winner,” he said.
Celgene Options
The deal for Genzyme may be announced as soon as the beginning of next week, the people said.
Bo Piela, a spokesman for Cambridge, Massachusetts-based Genzyme, and Sanofi’s Jack Cox both declined to comment.
Sanofi wouldn’t be the first company to use options linked to drug performance. Summit, New Jersey-based Celgene Corp. added CVRs in a deal for Abraxis BioScience Inc. in June, tied to milestones set for the company’s cancer medicine Abraxane.
Abraxis stockholders received an upfront payment of $58 in cash, one tradeable CVR, and 0.2617 common shares of Celgene for each Abraxis share they owned. The upfront payments valued Los Angeles-based Abraxis at about $2.9 billion, the companies said.
The CVRs, which began trading at $4 in October, tumbled 42 percent on Jan. 10 after Celgene said Abraxane didn’t meet a study goal, a milestone tied to a potential $250 million payout.
The CVR “offsets some of the risk of the drug not reaching full potential,” said Michael Obuchowski, chief investment officer of Hauppauge, New York-based First Empire Asset Management, which owns Genzyme shares.
Cash Savings
The cash portion of Sanofi’s offer would be an increase of $2 from its original unsolicited bid of $69 a share on Aug. 29 that Genzyme rejected. CVR payments may rise or fall based on due diligence, said one of the people. Genzyme said it was worth $89 a share in October, based on its profit growth forecast.
At $71 a share, Genzyme shareholders would receive $18.4 billion in cash, while getting CVRs with a payment value of $5 to $6 per share. That would save Sanofi $1.3 billion to $1.6 billion in upfront costs, data compiled by Bloomberg show.
The CVRs for Lemtrada may pay out more if it exceeds sales targets or less if they are lower, one person said. Investors would be able to trade the CVR, according to two of the people.
The per-share cash portion would represent 17.6 times analysts’ profit estimates of $4.035 per share for Genzyme this year. With the company projected to earn $4.90 next year and $5.90 in 2013, that multiple would drop an average of 14.4 times annual income over three years, the data show.
Relative Value
Five comparable acquisitions for biotechnology companies from Genentech Inc. to MedImmune Inc. were struck at a median 36.6 times reported income, data compiled by Bloomberg show. The largest was Basel, Switzerland-based Roche Holding AG’s $44 billion acquisition of Genentech in March 2009.
Roche, the maker of the world’s best-selling cancer drug, agreed to pay $95 a share for the 44 percent of South San Francisco-based Genentech that it didn’t own, or about 34 times trailing 12-month per-share earnings, Bloomberg data show.
Sanofi is getting advice on its offer from New York-based firms Evercore Partners Inc., JPMorgan Chase & Co. and Morgan Stanley, and BNP Paribas SA and Societe Generale of Paris, data compiled by Bloomberg show. Genzyme is using Zurich-based Credit Suisse Group AG and Goldman Sachs Group Inc. of New York.
Sanofi made its takeover approach after a virus contaminated a Genzyme manufacturing facility in Massachusetts, causing drug shortages as well as drawing fines and increased scrutiny from the U.S. Food and Drug Administration.
Takeover Approach
Genzyme dropped as much as 43 percent from a 2008 high of $83.25, while activist investors Carl Icahn and Relational Investors LLC’s Ralph Whitworth gained control of seats on Genzyme’s board. Genzyme’s biggest shareholders included Valley Forge, Pennsylvania-based Vanguard Group Inc. and State Street Corp. of Boston as of Sept. 30, data compiled by Bloomberg show.
Sanofi’s interest in Genzyme was first reported July 23, spurring a five-day, 29 percent rally in Genzyme’s stock to $69.79. Sanofi made its $69-a-share offer public on Aug. 29. Genzyme rejected it, prompting Sanofi to take the bid directly to shareholders in October.
Genzyme said on Jan. 10 that it was in talks with Sanofi and discussions revolved around a CVR that was tied to the success of its experimental multiple sclerosis medicine.
The drug, which will be marketed as Lemtrada if approved for use in MS, is already approved as a leukemia treatment. The medicine brought in less than $150 million in revenue in 2009.
Lemtrada Sales
Genzyme has said Lemtrada will be its biggest product, topping sales of rare-disease medicine Cerezyme. The treatment for the inherited illness Gaucher disease, had sales in 2009 of $793 million, falling from more than $1 billion from the previous year as the plant contamination caused shortages.
Sanofi is “paying for certainty,” said M. Ian Somaiya, who covers biotechnology companies as an analyst at Piper Jaffray & Co. in New York. “They’re paying for CVRs only if they’re meeting milestones or thresholds they’re comfortable with.”
Elsewhere in mergers and acquisitions, Newmont Mining Corp., the largest U.S. gold producer, agreed yesterday to buy Fronteer Gold Inc. for C$1.99 billion ($2.01 billion), including net debt, to gain exploration and development projects in Nevada. Newmont of Greenwood Village, Colorado, will pay C$14 for each Fronteer share, a 41 percent premium to the Vancouver- based company’s average price in the past 20 trading days.
Nippon Steel Corp. of Tokyo and Sumitomo Metal Industries Ltd. in Osaka plan to combine and create the world’s second- largest steelmaker to gain leverage over raw-material purchases and pricing of the metal as costs soar.
Sumitomo Metal
Based on Sumitomo’s market value and net debt, the deal would be worth about 2 trillion yen ($24.5 billion), according to Bloomberg data. Yesterday’s announcement didn’t disclose terms and said the deal would be completed by October 2012.
OAO Dixy Group in Moscow agreed yesterday to buy rival Russian supermarket chain Victoria Group for 20 billion rubles ($683 million), excluding debt. The deal would create the country’s third-biggest food retailer by revenue, selling space and number of stores.
There have been 2,272 deals announced globally this year, totaling $186.8 billion, a 18 percent increase from the $158.6 billion in the same period in 2010, according to data compiled by Bloomberg.
To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Meg Tirrell in New York at mtirrell@bloomberg.net.
To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Reg Gale at Rgale5@bloomberg.net.
Rate this Page