Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Medivation may have picked up some self-worth affirmations from Beyoncé, and that suits investors just fine. 

The San Francisco-based drugmaker on Friday rejected an unsolicited offer from Sanofi, saying it "substantially undervalues" the $9.3 billion company and that shareholders are better off if it pursues business as usual. That wasn't an unexpected move, considering Medivation doesn't seem interested in selling and is bullish about its pipeline, headed by prostate-cancer drug Xtandi (which is also being tested for its efficacy in combating breast cancer). 

Tellingly, Medivation's shares had closed Thursday at $56.17 a pop, 7 percent above Sanofi's $52.50 offer price, underscoring broad belief that a counterbidder may swoop in. The stock advanced as much as 2.2 percent early Friday, hitting a 10-month high of $57.41. That's well above the $50.06 that 17 Wall Street analysts, on average, believe the company will be worth in 12 months, suggesting shareholders could be getting a little ahead of themselves. 

Above and Beyond
Medivation shareholders are more bullish about the company's prospects than analysts, who believe the stock will be worth around $50 this time next year.
Source: Bloomberg

Sanofi, for its part, reiterated commitment to the deal it describes as "value-creating" for Medivation shareholders, with whom it plans to engage directly. But many are unlikely to listen unless they hear the shuffling of dollar bills, as a higher bid appears within reach and the French company isn't the only game in town.

The likes of Bayer, Merck, Novartis and Astellas would all benefit from thwarting Sanofi's ambitions with bids of their own, according to Bloomberg Intelligence analyst Sam Fazeli. And AstraZeneca and Pfizer are among firms considering offers, people familiar with the matter told Bloomberg News.

Just to show how deep their pockets run, Bayer, Merck, Astellas and Sanofi can all afford $70-per-share cash bids for Medivation and still have such a deal add to 2017 earnings, even without accounting for synergies, according to data compiled by Bloomberg. For Novartis, acquiring the oncology company at $70 a share would boost its earnings as soon as this year. But for AstraZeneca and Pfizer, a respective minimum of $90 million and $135 million in synergies are required to boost earnings by 2017, data shows.

While that $70 figure may seem a stretch -- especially as the stock's all-time high is $64.54 -- it's within Barclays analysts' expectation that a takeout price needs to be between $15 to $20 higher than Sanofi's tabled $52.50 offer.

Notably, analysts at Canaccord Genuity have set $70 as their 12-month target price for Medivation even without a deal. That is technically possible -- in the nearly 11 years with CEO and co-founder David Hung at the helm, the stock has delivered total annualized returns of almost 47 percent, outperforming peers, which posted average returns of 12.6 percent, according to Bloomberg data.

Betting on the Future
Medivation believes shareholders will be best served by allowing it to execute its business plan which involves delivering on its strong projected revenue growth.
Source: Bloomberg

Xtandi's extensive patent life and the fact Medivation is one of the last remaining sizable pure-play oncology companies means it can command a so-called "scarcity premium" in a takeover scenario. If Sanofi isn't prepared to pay up, then this target will remain out of reach whether it's snatched up by a rival or not. 

Update: This column has been updated to include the news that AstraZeneca and Pfizer are also considering bids for Medivation.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net