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Sanofi Takes $18.5 Billion Offer for Genzyme Hostile

Sanofi Begins $18.5 Billion Hostile Offer for Genzyme
Genzyme’s stock sank as much as 43 percent from its 2008 high after manufacturing glitches led to product shortages, leaving the company vulnerable to a takeover. Photographer: Michael Springer/Bloomberg

Sanofi-Aventis SA began an $18.5 billion hostile takeover offer for Genzyme Corp. after the U.S. biotechnology company spurned the bid as too low. Genzyme urged shareholders to take no immediate action.

The tender offer of $69 a share expires at 11:59 p.m. New York time on Dec. 10, Sanofi, France’s largest drugmaker, said today. “We believe the offer will be successful,” Chief Executive Officer Chris Viehbacher said during a conference call with reporters.

Investors who own more than 50 percent of Genzyme indicated in meetings that they were willing to sell their shares at “a reasonable price,” Viehbacher said at a Sept. 15 conference. Sanofi has been unwilling to raise the offer for the world’s largest maker of medicines for rare genetic disorders because of manufacturing problems at Genzyme’s Allston Landing factory. The bid doesn’t take into account potential revenue growth once the production issues are resolved, Genzyme has said.

“They had no choice but putting the offer on the table,” said Amit Shabi, co-manager of Bernheim, Dreyfus & Co.’s Diva Synergy Fund, which owns Genzyme shares, said of Sanofi. “They had no incentive to bump” up the price. “We think that they are going to bump at some point, to crack the opposition wall of shareholders.”

Genzyme rejected the original offer as too low and has since “blocked at every turn” efforts to negotiate, Paris- based Sanofi said today in a statement. A meeting between Viehbacher and Genzyme CEO Henri Termeer on Sept. 20 proved “unproductive,” and the two men haven’t spoken since, Viehbacher said today.

Direct Approach

“If they can’t get through Genzyme’s management, they’d be silly not to approach the shareholders directly,” Phil Nadeau, an analyst at Cowen & Co. in New York, said in a Sept. 30 interview. Nadeau has an “outperform” rating on Genzyme.

Genzyme’s board of directors will review today’s offer with financial and legal advisers and provide shareholders its formal position within 10 business days, the Cambridge, Massachusetts- based company said in a statement.

While Sanofi is still open to talks with Genzyme, Viehbacher said on the conference call he sees “no particular reason to bid more” at this time. Sanofi is a “patient and disciplined buyer,” he said.

Sanofi would be willing to raise its offer if Genzyme provided details to justify an increase, Viehbacher said today in an interview with Bloomberg Television. Sanofi had asked Genzyme for more information on the anticipated recovery of the manufacturing and Genzyme was unwilling to answer the request, he said in a letter to Termeer.

Frustrated Investors

Conversations with Genzyme investors also “revealed that those shareholders were frustrated with Genzyme’s persistent refusal to have meaningful discussions regarding Sanofi-Aventis’ proposal,” Sanofi said in a statement today.

Genzyme’s stock sank as much as 43 percent from its 2008 high after manufacturing glitches led to product shortages, leaving the company vulnerable to a takeover. Activist investors Carl Icahn and Ralph Whitworth of Relational Investors LLC gained control of board seats this year at Genzyme.

The deal would be the biggest hostile takeover in the drug industry since the transaction that created Sanofi-Aventis in 2004, according to Bloomberg data. Sanofi-Synthelabo acquired Aventis for about $64 billion after raising its bid once.

Acquisition History

Sanofi has announced 35 acquisitions in the past five years, with an average size of $1.6 billion and an average premium of 15 percent, according to data compiled by Bloomberg.

Sanofi said BNP Paribas SA, JPMorgan Chase & Co. and Societe Generale SA agreed to provide loans of $15 billion to help finance the takeover bid.

Genzyme rose 13 cents to $71.01 at 4:30 p.m. New York time in Nasdaq Stock Market composite trading. The stock has closed above the value of Sanofi’s offer every day since the bid was made public Aug. 29. Sanofi fell 28 cents to 48.01 euros in Paris trading. The stock has declined 13 percent this year.

Should Sanofi walk away, Genzyme shares probably would fall to the low- to mid-$50s, Nadeau said.

“I will happily sell at $80, and with regrets at $76,” Genzyme investor Shabi said today. At $69? “Never.”

Cerezyme -- Genzyme’s best-selling medicine, with $793 million in sales last year -- is a mass-produced version of a human enzyme missing in patients with the inherited illness Gaucher disease.

Generic Competition

Sanofi is seeking acquisitions to replace revenue the company is losing as some of its biggest-selling products, such as the blood thinner Plavix and the cancer drug Taxotere, face competition from generic medicines.

Genzyme’s drugs are less likely to face generic competitors because they’re made from living cells and are harder to copy than pills made from chemicals. The U.S. Food and Drug Administration designated the therapies as orphan drugs because they’re for diseases without other treatment options, giving them more patent protection.

Termeer said in August that he was open to selling the biotechnology company at a “fair value,” higher than $69 a share.

“It could be that he is just being a tough negotiator,” said Nadeau, the Cowen analyst. “He does have a fiduciary duty to Genzyme shareholders that they get the best possible price.”

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