Sanofi-Aventis, Genzyme Are on the Brink of a Merger

Sanofi-Aventis, Genzyme Are on the Brink of a Merger
Sanofi-Aventis, Genzyme Are on the Brink of a Merger

It seems that months of contentious merger talks between French pharmaceutical company Sanofi-Aventis (SNY) and U.S. biotech Genzyme (GENZ) have entered the home stretch. Sanofi is expected to offer $74 per share for the rare-disease drugmaker, with an option included potentially worth $5 to $6 a share.

Sanofi first offered $69 a share for Cambridge, Mass.-based Genzyme, an offer that Genzyme CEO Henry Termeer called "opportunistic." Genzyme rejected that offer, and several other similar bids were turned down as well. Sanofi CEO Chris Viehbacher said he was in no rush to seal a Genzyme deal -- then launched a hostile takeover bid. Only lately have the two companies entered friendly negotiations based on a higher price.

Now, the deal is expected to be based on a price of $74 per share, or $19.2 billion, and is also expected to include a contingent value right (CVR). This tradeable instrument would reward shareholders based on the performance of of Genzyme's potential multiple sclerosis treatment Lemtrada, which is already sold under the brand name Campath for leukemia. The CVR would bridge the wide gap between the two companies' estimates for the drug: Genzyme expects peak annual sales of $3.5 billion, while Sanofi put that number at $700 million.

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The CVR would have a much higher nominal value of between $12 and $15, to be paid out over seven or eight years, according to a Reuters source. But for now, the CVR is expected to begin trading at about $2 to $3, according to Reuters and Bloomberg sources. As Genzyme releases more data on Lemtrada, and if it later meets certain sales goals, the CVR could be eventually valued between $5 and $6 a share, according to The Wall Street Journal.

The final deal could be announced as soon as Monday, and many expect word will come before Wednesday, when Sanofi is reporting its 2010 financial results -- numbers that will likely underscore the urgency of the deal for Sanofi.

Sanofi is set to lose patent protection on some of its key drugs by 2013, which will hurt its top line as it is forced to compete with lower-priced generics. Sanofi has also experienced recent pipeline setbacks with several drug failures. The acquisition would give Sanofi access to Genzyme's high-margin rare disease franchise. And because Genzyme's drugs are biologics, they are harder to copy as generics, further shielding the business.

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