Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Sanofi's latest attempt to pressure Medivation into takeover talks looks pretty weak. The French pharma group is trying a bear-hug strategy to force the U.S. oncology specialist to the table. But this is a battle where financial muscle will probably count more than tactical strong-arming.

On May 5, Sanofi published an open letter to Medivation's board saying it had been speaking to the U.S. target's top shareholders and believed there was "overwhelming support" for a transaction. Sanofi warned it could go hostile if Medivation doesn't start talking. That was the stick. The carrot was the suggestion that Sanofi could raise its $52.50 per share proposal if Medivation entered discussions and demonstrated why it was worth more.

High Hopes
Medivation investors are betting on a bigger bid than Sanofi's opening gambit
Source: Bloomberg

Such tactics might have made Medivation engage if it was a troubled company and Sanofi's bid was the only realistic chance of its shares reaching the level being dangled. But, as Gadfly has argued, Medivation can easily sit tight. It has a major drug on the market. And there is a host of Sanofi's big-pharma peers who might like to buy it too. Analysts think it's worth about $70 a share to some of them. So while Medivation's stockholders may well be open to a deal, they'll only do it at the right price.

Maybe Sanofi will follow through on its threat and go hostile but that would be very risky. It wouldn't have done due diligence, so couldn't offer too high a price. That in turn would create an opening for a white-knight counter-bid.

What can Sanofi do to avoid an auction? It probably has to stump up a price that Medivation likes and which makes a counter-bid unaffordable (perhaps in part thanks to a chunky break-fee). Achieving this requires due diligence and the full support of Medivation's management.

With no other suitors showing their hand, Sanofi may be wary of bidding against itself. But it's hard to see its present proposal getting it what it wants.

Medivation looks open to selling at a higher price. Its detailed rejection of the Sanofi proposal reads like an agenda for takeover talks. But it's up to the bidders to make an acceptable proposal first, even if that's contingent on testing certain assumptions.

Right now, the market is anticipating that someone will pay more than $60 per share. If Sanofi disagrees, it may just have to let this one pass.

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

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net