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.

When Sanofi makes a threat, it clearly means it.

The French drugmaker, which has been stalking Medivation for the past two months, on Wednesday said it was pushing forward with a plan to oust the oncology specialist's board and replace it with directors who would explore a possible sale -- ideally to Sanofi. With the move, Sanofi is effectively going hostile after Medivation spurned its earlier $52.50 takeover proposal. Medivation is now under pressure to mount a convincing defense.

What's It Worth?
Medivation shares have traded persistently above Sanofi's $52.50 bid proposal since it was revealed.

Sanofi says it wants talks with Medivation. Its tactics are hardly amicable. The company has started a so-called written consent process, which means Medivation shareholders are set to get a vote in about a month on whether to install a Sanofi-nominated board. Should the motion get just over 50 percent support, the new board takes over. Then, while mindful of their fiduciary duty, the new directors would presumably open the books to Sanofi for due diligence while seeking competing bids.

Of course, Medivation shareholders would welcome a takeout at a juicy premium. But it's hard to see how backing Sanofi's motion would ensure that Medivation gets sold at the best price.

Critically, the new board would start off with one hand tied behind its back because it would be unable to stage a defense based on Medivation's future as an independent company. However credible the new directors may be, they are still dissidents specifically assembled to sell the firm. It will be hard for them to squeeze full value out of Sanofi unless they can get an auction going.

Sanofi knows this. Its entire tactics seem grounded in the view that there are no other bidders. This assumption may yet be proved true. None have emerged so far -- although Medivation is doubtless attracting some interest (Bloomberg News reported Wednesday that Celgene and Gilead Sciences are considering bids). If Medivation has only one buyer, then it is all the more crucial that it has a board that can mount a credible defense based on fundamental long-term value and getting a fair price for selling control. 

Struggling For Growth
Sanofi's financial performance has struggled for momentum
Source: Bloomberg

The fact is that Sanofi's proposal just looks too low. Sanofi says it's offering a 50 percent premium, but that is struck on top of an average price calculated over a period of market turmoil earlier this year. Medivation shares have traded stubbornly north of $60 for most of May despite no other bidders emerging-- a sign investors think the company is worth much more to a buyer than what Sanofi offered in its unsolicited proposal.

There is a risk that just enough shareholders put in their support for Sanofi's motion and try to flip the company. Medivation can't be complacent. It would be in a stronger position with a counter-bidder. Until it gets one on the hook, it must articulate more fully its stand-alone defense.

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:
Beth Williams at bewilliams@bloomberg.net