Sanofi to Buy Genzyme for Sweetened $20.1 Billion After Nine-Month Pursuit

Sanofi-Aventis SA agreed to buy Genzyme Corp., ending a nine-month pursuit of the U.S. biotechnology company with a sweetened offer of at least $20.1 billion that gives France’s biggest drugmaker treatments for rare diseases.

Genzyme’s stockholders will get $74 a share in cash, Paris- based Sanofi said today in a statement. They also will receive so-called contingent value rights that entitle them to payments of as much as $14 a share depending on the performance of Genzyme’s experimental multiple-sclerosis drug Lemtrada and production levels of two other products, the company said.

Acquiring Genzyme, the world’s largest maker of medicines for rare genetic disorders, will help Chief Executive Officer Chris Viehbacher offset revenue losses as some of Sanofi’s biggest-selling products face competition from generic versions. Sanofi gains treatments for Fabry, Gaucher and Pompe diseases.

“This deal buys him time,” Jerome Forneris, who helps manage $12 billion, including Sanofi shares, at Banque Martin Maurel in Marseille, said in a telephone interview. “The problem is the same for all drugmakers. They lose revenue as their top sellers go generic.”

The offer represents a 48 percent premium over Genzyme’s price of $49.86 before Bloomberg News reported July 2 that the company may be a target of Sanofi. The French company announced a $69-a-share, $18.5 billion cash bid on Aug. 29, and made a hostile tender offer to shareholders at the same price Oct. 4.

Genzyme’s History

The purchase values Genzyme at 4.7 times sales, compared with a median multiple of 4.3 for U.S. drug and biotechnology companies in the past five years, according to data compiled by Bloomberg.

The agreement will end Genzyme’s 30-year history as an independent drug developer. Manufacturing glitches in 2009 led to shortages of the Cerezyme and Fabrazyme drugs and drove shares down, leaving the Cambridge, Massachusetts-based company vulnerable to a takeover. The sale also may mark the end of the career of Genzyme Chief Executive Officer Henri Termeer, 64, a biotechnology pioneer who transformed the company from a start- up into a drugmaker with $4.5 billion in annual sales.

Since joining Sanofi in December 2008, Viehbacher, 50, has been hunting outside the company’s laboratories for products that will help replenish its pipeline of new drugs. Sanofi’s top-selling medicines, including the blood thinner Plavix and the cancer drug Taxotere, are facing competition from generics.

Earnings Boost

Sanofi rose 1.75 euros, or 3.5 percent, to 51.55 euros in Paris. Genzyme gained 80 cents, or 1.1 percent, to $75.10 in Nasdaq Stock Market composite trading.

The difference between Genzyme’s share price and Sanofi’s offer reflects the worth investors are putting on the contingent value right, said Lionel Melka, co-manager of Paris-based Bernheim, Dreyfus & Co.’s Diva Synergy Fund, which focuses on acquisition targets.

The transaction will be completed early in the second quarter, Sanofi said today. The deal will add to Sanofi’s earnings in the first year after closing, and will add 75 cents to 1 euro to earnings per share by 2013, the company said.

Genzyme holders will receive one contingent value right per share. Sanofi will pay $1 per CVR if Genzyme produces specified levels of Cerezyme and Fabrazyme this year and another $1 if the U.S. Food and Drug Administration approves Lemtrada to treat multiple sclerosis. CVR owners will receive $2 if Lemtrada sales exceed $400 million within specified periods per territory, $3 if sales exceed $1.8 billion, $4 if they surpass $2.3 billion and $3 if they top $2.8 billion.

‘Important Tool’

The right, which will be publicly traded, will terminate on Dec. 31, 2020, or earlier if the sales goals have already been reached.

The contingent value right enabled Genzyme and Sanofi to overcome disagreements on whether Lemtrada will be a blockbuster drug, Viehbacher said on a conference call with reporters. Sanofi proposed the idea at a meeting in September, he said.

“The CVR was an extremely important tool to bridge differences in value,” he said. “Genzyme’s own forecasts for Lemtrada were very significant.”

Genzyme has projected peak sales of $3.5 billion for Lemtrada, known as Campath when used for blood cancer. Sanofi said in October that analysts’ estimates of about $700 million were a valuation “probably closer to the reality of the product.” Lemtrada is in the final stages of testing and Genzyme expects data from those trials this year.

Viehbacher’s Pursuit

The acquisition is the biggest industry takeover since Merck & Co. bought Schering-Plough Corp. for about $47 billion in November 2009, according to Bloomberg data. It’s also the biggest U.S. purchase by a European company since Roche Holding AG’s $46.8 billion acquisition of Genentech Inc. in 2009.

Viehbacher began pursuing Genzyme last year when the U.S. company was focused on fixing manufacturing snags that cut into sales of its biggest products after a 2009 virus contamination at a factory in Allston, Massachusetts. Shire Plc took market share from Genzyme, and Genzyme’s stock sank as much as 43 percent from a 2008 high, causing unrest among shareholders.

The Sanofi chief told Termeer of his interest in acquiring Genzyme in a May 23 conversation, according to a Sanofi filing last year with the U.S. Securities and Exchange Commission. Sanofi announced the bid after Genzyme’s board spurned the offer as too low and refused to negotiate.

The Window

Sanofi said the offer enabled Genzyme shareholders to cash out after “quite a lengthy period” when the stock underperformed. Genzyme fired back that the offer was “inadequate and opportunistic.” The company had been targeted by activist investors Ralph Whitworth of Relational Investors LLC and Carl C. Icahn, who gained four of 13 board seats last year in compromises brokered with Genzyme to avoid a proxy battle.

“There was a window after Genzyme’s manufacturing problems and the proxy fight, and Viehbacher took advantage of it,” Melka said in a telephone interview. “Genzyme is a good deal for him, a beautiful company with a lot of potential. It was what Sanofi needed.”

The companies later began negotiations over the proposal and said Jan. 31 that they had started due diligence. Genzyme agreed to provide data such as profit margins and customer lists, which Sanofi agreed not to divulge. The $69-a-share tender offer had been set to expire last night.

Evercore, JPMorgan

Sanofi was advised by Evercore Partners Inc. and JPMorgan Chase & Co.

Genzyme’s top-selling medicine, which garnered $722 million in sales in 2010, is Cerezyme, a mass-produced version of a human enzyme missing in patients with the inherited illness Gaucher disease. The medicine had sales of more than $1 billion in 2007 and 2008 before shortages caused by the plant contamination.

Fabrazyme, used to treat the genetic illness Fabry disease, and Myozyme and Lumizyme for Pompe disease, similarly provide patients with enzymes their bodies fail to make or produce adequately on their own.

Unlike the pills produced by traditional drug companies, Genzyme’s medicines are made using biological processes and can’t be readily copied by generic-drug makers. Genzyme garners premium prices from insurers and government payers because the therapies provide life-saving benefits.

Genzyme has about 10,000 employees and 12 manufacturing facilities worldwide, according to the company’s website. Its products are available in almost 100 countries.

While Genzyme asked its bankers at Goldman Sachs Group Inc. and Credit Suisse Group AG to see what the company might fetch from another bidder, according to an Oct. 7 filing, none surfaced. That forced Termeer’s hand, said Bernheim, Dreyfus & Co.’s Melka.

“They had no other option,” Melka said. “No white knight ever emerged.”

To contact the reporters on this story: Albertina Torsoli in Paris at atorsoli@bloomberg.net; Meg Tirrell in New York at mtirrell@bloomberg.net

To contact the editors responsible for this story: Phil Serafino at pserafino@bloomberg.net; Reg Gale at rgale5@bloomberg.net.

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Sanofi-Aventis SA Chief Executive Officer Chris Viehbacher.

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Sanofi-Aventis SA Chief Executive Officer Chris Viehbacher. Close

Sanofi-Aventis SA Chief Executive Officer Chris Viehbacher.

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The Sanofi-Aventis SA logo is displayed at the company's headquarters in Paris. Close

The Sanofi-Aventis SA logo is displayed at the company's headquarters in Paris.

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Genzyme Corp. headquarters in Cambridge, Massachusetts. Close

Genzyme Corp. headquarters in Cambridge, Massachusetts.

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Genzyme Chief Executive Officer Henri Termeer. Close

Genzyme Chief Executive Officer Henri Termeer.

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