Sanofi Buys Genzyme for Over $20 Billion
Sanofi Buys Genzyme for Over $20 Billion
SA acquired Genzyme Corp. for $74 a share, or a total of $20.1 billion plus a contingent value right, in a giant step toward reshaping the company for future business.
Sanofi-Aventis said the boards of both companies have approved the deal. After Sanofi initially considered trying to obtain a slightly lower price, the parties largely agreed to the broad terms that they originally negotiated when Sanofi was given access to Genzyme's financial books on Jan. 31.
As part of that broad agreement, Sanofi agreed to raise its offer from $69 a share to about $74 a share in cash. Genzyme investors will also receive a so-called contingent value right, or CVR, that entitles them to additional payments if the company meets certain sales goals. The CVR, which investors will be able to trade on a stock exchange, will have an initial trading value of at least $2 a share, people familiar with the matter said.
"At around $20 billion this is the second biggest deal in biotechnology in history and of course this was very much at the root of the strategy behind this transaction—our objective was to extend and accelerate the company's reach into biotechnology," Sanofi Chief Executive Chris Viehbacher said in a conference call with journalists on the deal.
After Sanofi finished its due diligence on Genzyme, Sanofi executives pushed to change some of the original terms, and therefore some of the criteria for the CVR have been adjusted.
The CVR will have an eventual value of between $5 and $6 a share if Genzyme meets sales targets for a drug used to treat leukemia, which is also being tested against multiple sclerosis. The future payments could be worth as much as $14 a share over the long term in the best-case scenario for sales of the drug to multiple-sclerosis patients.
"We see everyone as a winner," Deutsche Bank said in reaction note on the deal, adding that it's "a positive outcome for Sanofi shareholders in our view and likely to result in relief that management has remained diligent in its view of the appropriate valuation."
Sanofi didn't find any major issues in its examination of Genzyme's financial books and manufacturing facilities. There was a risk for Genzyme that Sanofi could discover some problems, given that the Cambridge, Mass., biotechnology firm is still recovering from manufacturing issues that temporarily shut down a Genzyme production facility in 2009.
A CVR is often used when parties can't agree on price. One of the issues between Sanofi and Genzyme is their differing predictions on the sale of the multiple-sclerosis drug. Genzyme has predicted those sales could reach $3.5 billion in 2017, a projection Sanofi has said is too optimistic.
Sanofi has been pursuing Genzyme for months, but the biotechnology firm had refused to talk to Sanofi because of its $69 a share offer, which Genzyme said was too low. In August, Sanofi made an unsolicited bid for Genzyme, and went hostile with its offer in October.
Some of Sanofi's biggest products, including the cancer drug Taxotere and the blood-thinner Lovenox, have lost sales to generic rivals, while another big drug, the blood thinner Plavix, is expected to confront generic competition in 2012. Plavix accounted for about 9% of Sanofi's $40 billion in sales last year.
Genzyme's biotech drugs treating rare diseases would help Sanofi plug its impending revenue gap. Genzyme had $4 billion in product revenue in 2009.
In just over two years running Sanofi, Mr. Viehbacher has focused on both cutting costs internally by reducing projects under development and building up future sources of revenues by striking up partnerships for research projects or buying up other companies outright.
As part of its quest to find new sources of revenues to offset impending losses from patent expires on key products, Sanofi has concentrated on serving emerging markets, bulking up its offer of over-the-counter goods and increasing its presence in generic drugs. The deal is the biggest since the French pharmaceutical giant was formed by the acquisition of Aventis in 2004, in a multi-billion euro deal.
The French company plans to proceed immediately with the integration of Genzyme, which will form the center of the combined group's rare diseases business. A joint integration steering committee will be co-chaired by Viehbacher and Henri Termeer, who will resign as Chairman and Chief Executive of Genzyme when the transaction is completed.
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