Genzyme board unanimously rejects Sanofi-Aventis’ $69/share tender offer as “inadequate and opportunistic”

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Ghislaine SURREL

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Genzyme board unanimously rejects Sanofi-Aventis’ $69/share tender offer as “inadequate and opportunistic”

Article | 8 October 2010

Giving its official reaction to French drug major Sanofi-Aventis’ (Euronext: SAN) move to approach shareholders directly (The Pharma Letter October 4), US biotech firm Genzyme (Nasdaq: GENZ) says that its board of directors has voted unanimously to reject the unsolicited $69.00 per share, or $18.5 billion, tender offer and recommends that Genzyme shareholders not proffer their shares.

Genzyme’s shares rose less than 1% to $73 in extended Nasdaq Stock Market trading yesterday. The stock had dropped as much as 43% from a 2008 high of $83.25 after  the company experienced contamination at a Boston plant caused shortages of its rare disease drug and eroded sales (TPLs passim).

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According to the Wall Street Journal, while not actively soliciting a “white knight" (which has so far not emerged), Genzyme will “evaluate alternatives for the biotechnology firm, including reaching out to other companies.” Sanofi-Aventis’ chief executive Chris Viehbacher has previously indicated the company would be willing to raise its offer if Genzyme provided details to justify a boost, but could not go as far as $80 a share. This morning, according to a Bloomberg report, the French firm denied that it had offered Genzyme a price range of $69-$80 a share during a September 20 meeting between the two firms’ CEOs.

“Typically the first bid is not the best and final bid,” Phil Nadeau, an analyst with Cowen & Co. in New York, said in an October 5 telephone interview with Bloomberg, noting that “it’s normal for the shares to trade above the first hostile bid.”

Details of Genzyme’s argument

In its press statement the Genzyme board said it considered the following factors, among others, when making its recommendation:

• The offer is based on identical financial terms to two previous unsolicited proposals submitted by Sanofi-Aventis, both of which were rejected by the board. The board remains unanimously resolute in its belief that the offer price of $69.00 per share is inadequate and opportunistic, substantially undervalues the company, fails to recognize the company’s plan to increase shareholder value, and is not in the best interests of Genzyme or its shareholders.

• The offer fails to compensate shareholders for the value of Genzyme’s existing business, which delivered compound annual revenue growth of 23% from 2002-2009. This business includes a unique and longstanding leadership position in the orphan-drug market; 12 market-leading products with durable revenue streams; and a long history of research and development productivity and success.

• The offer fails to recognize the value-creation impact of the company’s five-point plan. Under this plan, Genzyme is focusing on its core business and working to establish operational excellence in manufacturing; capitalizing on near-term growth drivers; divesting non-core businesses; reducing operating costs and improving margins; and optimizing its capital structure. Genzyme has made significant progress in implementing this plan, and the board believes that - given the opportunity to fully execute the plan - the company has the potential to generate substantially more value for shareholders than the offer price. The company also has an opportunity to further deploy its substantial prospective free cash flow to maximize value for shareholders.

• The offer fails to reflect Genzyme’s valuable late-stage pipeline, which includes three breakthrough products that are expected to be launched by the end of 2013. Foremost among these products is alemtuzumab, a potentially transformative therapy for multiple sclerosis. Phase III clinical trial results for this drug will be available in the middle of next year. Based on the robust clinical results reported to date from the Phase II study, and the possibility for once yearly dosing, alemtuzumab has the potential to capture a material share of a global MS market that is projected to reach $14 billion when the product is first launched in 2012, offering an exciting revenue opportunity that will result in significant value for shareholders.

• The offer price does not adequately compensate Genzyme’s shareholders for the strategic importance and financial benefit to Sanofi-Aventis of a potential transaction with Genzyme.

The full basis for the board’s recommendation is set forth in a Solicitation/Recommendation Statement on Schedule 14D-9, which was filed by Genzyme with the Securities and Exchange Commission. In the fling, it was revealed Genzyme chief executive Henri Termeer owns 708,878 company shares which, even at the $69 price atag, would mean nearly $49 million personally if he tendered his stock.

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