Health

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 is paying a high price for its early tactical blunders in the pursuit of U.S. oncology specialist Medivation.

Bitter Pill
Sanofi's aggressive pursuit of Medivation created an opportunity for friendly counterbidders like Pfizer
Source: Bloomberg

The French drugs group has been beaten by U.S. competitor Pfizer, which on Monday made what looks like a knockout $14 billion bid for Medivation.

The five-month takeover saga has cost Sanofi dearly in lost credibility and management time -- and only highlighted its strategic weakness.

A month after approaching Medivation with a tentative takeover plan in late March, Sanofi began to pressurize its target by going public with a $9 billion proposal. Then it started a process to replace Medivation's board. Such hostility might have made sense were Sanofi the only likely bidder -- but Sanofi miscalculated. Medivation was always likely to attract other suitors, and the French group's tactics created a now-or-never situation that forced counter-bidders to emerge.

Sanofi is likely to struggle to trump Pfizer's agreed transaction. In return for getting access to Medivation's books it had to sign up to a stand-still agreement, something that will make a hostile bid much harder. Sanofi's best (but slim) hope would be for Pfizer's transaction to fail to complete before the stand-still agreement expires. 

Rising Price
Medivation shares have surged on Sanofi's interest
Source: Bloomberg

Even if Sanofi was able to find a loophole and make a counteroffer at this late stage, its credibility will be damaged given how high it would have to jump from its starting bid: Medivation shares have consistently traded above Sanofi's first $52.50-a-share offer, as well as a revised $61 proposal made in July. True, Medivation stock was trading at about $37 before Sanofi's interest materialized, but markets were weaker then.

What's more, analysts estimated Medivation to be worth considerably more: Oddo Securities said the minimum price to get a deal done was $67.70, and a transaction would have made sense up to a price of $90.30. Pfizer's offer is at $81.50.

Sanofi CEO Olivier Brandicourt has made much of his strategic priority to expand in oncology. He has been vocal about how well Medivation would fit with that. He urgently needs a plan B, and that will require another takeover.

The lesson will be that it is better to pay up to seize the initiative when buying a company likely to attract rival interest. The snag is that Brandicourt may have to pay up even more now because sellers will see him coming.

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:
Edward Evans at eevans3@bloomberg.net