Genzyme shareholders yawn as Sanofi digs in for winter

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Some of the largest shareholders in Genzyme (NASDAQ:GENZ) told dealReporter that they have grown bored with Sanofi-Aventis’s (SASY.PA) protracted acquisition strategy.

The French pharmaceutical company has alternated between blowing hot and cold as it tries to convince Genzyme’s management team, board and shareholders to accept an offer. So far none of the stakeholders have caved in and there are signs shareholders have caught on to Sanofi’s tactics, which are similar to the strategies employed on other large pharma sector deals.

Sanofi’s current tender offer for the Cambridge, Massachusetts-based biotechnology company expires on 10 December, with a report on CNBC suggesting that Sanofi does not plan to increase its bid above USD 69 a share.

Two sources close to Genzyme said they expect the game of increase or extend will probably go on for a little bit longer. While refusing to comment on Sanofi’s next move, a source close to the company said people involved in the deal are planning on “relaxing” during the Christmas break.

In the past two weeks, Genzyme has floated the idea of structuring a deal with a contingent value right (CVR) that would give shareholders additional upside if its drug Campath performs well. Two sources close to Genzyme said talks around the CVR issue have not produced concrete results.

The CVR discussion is complicated and the two parties have not been willing to bridge the gap on the valuation of Campath, these sources said. Recently, advisers from both camps, not the board members, have been exchanging ideas. The sources said that advisers are “almost talking” but “not really.”

If Genzyme values Campath sales at USD 3.5bn, it means the company sees a CVR in the area of USD 20 a share, said a person briefed on the situation. The person added that Genzyme appears to be aware that the USD 3.5bn is an unrealistic valuation.

A middle ground could be reached with a CVR worth USD 10 a share and a USD 5 bump to the USD 69 offer, the person said. The person noted that a CVR scheme makes a lot of sense in the pharma industry and has been used in deals like Abraxis and Celgene.

Unlike some suggestions that short-term investors would have a problem with this structure, investors said a CVR is a decent option that can be treated just like another tradable instrument.

The source close to Sanofi said the French company does not believe the idea of a CVR structure will go through. “Either you believe in something and you buy it or you don’t buy it,” this source said.

Sanofi’s CFO told newswires recently that a CVR was interesting “in principle” but he declined to say if Sanofi was discussing one with Genzyme.

The idea of CVR has served as an ice-breaker, rather than an actual attempt to structure the deal through this mechanism, the Genzyme sources argued.

As the Sanofi saga drags on, Genzyme is preparing to update the market on its attempt to gather independent valuations on Campath after talking to other companies in the sector. It appears that Genzyme may use the opportunity to pat itself on the back and reiterate Sanofi’s current offer undervalues the company.

Rival bidders unlikely to make acceptable offers

However, the last two companies that stuck around for further rhetorical discussions with Genzyme over market value of the company – Pfizer (NYSE:PFE)and Johnson & Johnson (NYSE:JNJ) – are unlikely to make sufficient offers, said the person briefed and one of the sources close to Genzyme. However, Pfizer appears to be interested in buying some Genzyme assets, the source close to Genzyme said.

This leaves Genzyme cooped up over the winter with frustrated shareholders and a hostile bidder intent on sticking to its clever strategy of patiently waiting, Genzyme shareholders and sources pointed out.

On Tuesday, Sanofi notified the European Commission of its proposed takeover of Genzyme. The deadline for a phase 1 EC decision is 12 January.

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