As much as 20% of the patented drug portfolio of Sanofi-Aventis SA (NYSE: SNY) will fall off the so-called “patent cliff” by 2013, and the French company is trying to do something about it. The company has spent about $17 billion on acquisitions in the past few years, and has now publicly announced a $69/share cash offer for Genzyme Corp. (NASDAQ: GENZ). The total value of the offer is $18.5 billion.
Genzyme, as might be expected, has described the offer as “opportunistic” and said that it is an “unrealistic starting price that dramatically undervalues our company.” The publicized offer validates the speculation that Sanofi has been trying to get Genzyme to talk about a possible acquisition. Genzyme’s rejection of Sanofi’s offer is expected to result in a direct appeal to Genzyme’s shareholders.
That might not work out so well. Carl Icahn owns 5% of Genzyme and has two associates on the board, and Relational Investors LLC owns 4% and has placed its CEO, Ralph Whitworth, on Genzyme’s board. These activist investors are well-known for encouraging companies to sell, but they have, thus far at least, maintained a solid front with other Genzyme board members by rejecting Sanofi’s bid. That probably indicates that the activists believe they can squeeze more money out of Sanofi.
Demanding more money might be harder than expected because no other companies have popped up as potential suitors for Genzyme. There are also not endless numbers of bidders capable of competing with Sanofi on the buyouts. As outlined in recent weeks, buyers are more likely to concentrate on many of Genzyme’s smaller peers.
Genzyme has a few problems of its own. In June 2009, the company’s main production facility was closed as a result of contamination, causing a shortage of drug supply and lower sales. The company has recently indicated that it could take up to four years to fix the manufacturing problem. That’s a long time for Genzyme.
Thus, on one hand Sanofi needs something to replace the patent losses it faces in the next few, and on the other hand, Genzyme is on shaky ground for the next few years. Reading those tea leaves indicates that a deal is very likely to get done, but probably not at $69/share, or at $80/share, as Genzyme would certainly prefer.
Sanofi might also want to begin a hostile attempt to flush out any potential competition. If, or when, the competition fails to materialize, that might weaken the resolve of Genzyme’s activist board members to hold out for a much higher price.
As of this writing, Paul Ausick did not own a position in any of the stocks named here.
GameChanger Stocks to Build Your Wealth. GameChangers are companies that rewrite the rules, revolutionizing the way we live and thrive. And their business breakthroughs delivered handsome profits for savvy investors who got in early. Discover the next generation of GameChangers you should be buying now. Download your FREE copy of Hilary Kramer’s new report here.
