Image via Wikipedia Latest on Genzyme's Merger with Sanofi-Aventis
By Val Brickates Kennedy and Polya Lesova, MarketWatch
BOSTON (MarketWatch) -- Following weeks of speculation, beleaguered biotech leader Genzyme Corp. on Monday formally rejected a $18.5 billion takeover offer from French pharmaceutical firm Sanofi-Aventis, asserting that the bid substantially undervalues the company.
Sanofi (SNY 28.84, +0.21, +0.74%) (FR:SAN 45.56, +0.30, +0.66%) announced on Sunday its offer to buy Genzyme for $69 a share in cash. The two firms have been in talks since July.
Genzyme (GENZ 69.80, -0.11, -0.16%) investors greeted the news warmly, pushing up shares almost 4% to $70.08. U.S.-traded shares of Sanofi, while Roche shares rose 1% to $33.62.
Analysts have said that they would expect a reasonable bid for Genzyme to be at least in the low $70s. See "Will Sanofi snap up Genzyme?"
In a statement issued early Monday, Genzyme acknowledged it had spurned the offer and also accused Sanofi of being "opportunistic." Genzyme added that the latest offer was "identical" to an offer rejected by the biotech firm on Aug. 11.
"You and your advisers claim you are willing to pay more but that you are unwilling to 'bid against yourself.' The Genzyme board is not prepared to engage in merger negotiations with Sanofi based upon an opportunistic proposal with an unrealistic starting price that dramatically undervalues our company," wrote Genzyme Chief Executive Henri Termeer to Sanofi's board in the letter released Monday.
Once regarded a "blue chip" among the biotech stocks, Genzyme's shares took a huge hit last year due to chronic manufacturing problems at one of its key plants, which had led to worldwide shortages of two of its biggest-selling products. In Monday's letter, Genzyme said that it is well on the road to restoring shipping volume to normal levels.
Sanofi-Aventis said Monday that its offer represents a 38% premium over Genzyme's share price on July 1, before speculation about a possible deal began to swirl.
According to media reports last week, Sanofi's board is unwilling pay more than $70 a share for Genzyme and may look for alternative acquisitions if Genzyme continues to rebuff its overtures.
Sanofi's board has been rumored for many months to be interested in acquiring a U.S.-based drug maker in the $20 billion range to help bolster its top line. The French drug maker is facing the loss of market exclusivity for some of its hottest products -- particularly the blockbuster blood thinners Plavix and Lovenox. In addition to Genzyme, the rumored takeover candidate list has included Biogen Idec (BIIB 53.92, -0.68, -1.25%), Celgene Inc. (CELG 50.84, -1.00, -1.93%) and Allergan Inc. (AGN 62.35, +0.34, +0.55%), according to analysts.
At least one major Genzyme shareholder, Carl Icahn, has expressed interest in selling the company if the price was right. Icahn started moving into Genzyme's shares last year when its production problems made headlines. Icahn's representatives currently hold two seats on the company's 13-member board.
In its statement Monday, Genzyme said that the board was unanimously opposed to the bid of $69 a share, indicating Icahn was also against the deal.
In a conference call with analysts Monday, Sanofi-Aventis Chief Executive Christopher Viehbacher ratcheted up the rhetoric, calling the offer "compelling" and accusing Genzyme of "stonewalling."
"We are going to be disciplined, and disciplined means that we have a value in mind," said Viehbacher. "I am not prepared to go to any lengths to acquire the company."
Sanofi also claims that its offer represents a multiple of 36 times Genzyme's 2010 earnings per share and 20 times 2011 earnings per share.
In the absence of Sanofi-Aventis' offer, Genzyme's share price would fall back to the $50 level, according to Viehbacher.
The Sanofi chief executive commented that Sanofi's offer is superior to Genzyme's stand-alone strategy and would yield value for both sides, taking into account the upside potential of the anticipated recovery in Genzyme's performance in 2011.
"At the moment, we have essentially encountered a brick wall," Viehbacher said. "We are putting $18.5 billion in cash on the table, and our offer is not being taken seriously."
Val Brickates Kennedy is a reporter for MarketWatch in Boston.
Polya Lesova is MarketWatch's London bureau chief.