The two companies have conducted their courtship in the media through undisclosed sources since The Wall Street Journal first reported it back on July 23. Sanofi finally 'fessed up on Sunday, announcing that it had submitted a bid to acquire Genyme for $69 per share. Genzyme's management apparently thinks that's ludicrous. The two are so far apart on a price that they haven't even begun negotiating.
As I see it, that's a win for Genzyme; Sanofi needs Genzyme a lot more than Genzyme needs to be bought out. The French drugmaker is facing the upcoming patent loss of multi-billion dollar Plavix, and since the talks began, Sanofi has found itself with generic competition for Lovenox from Novartis (NYSE: NVS ) and Momenta Pharmaceuticals (Nasdaq: MNTA ) .
There's a lot of reason for Genzyme's management to shun the bid. If the company can be turned around, it's clearly worth more than $69 per share; in 2008, it traded for more than $80. Genzyme's chairman and CEO Henri Termeer likely wants to see the turnaround through, or at least capture most of the value in its potential.
At this point, it seems the next step is to appeal to Genzyme's investors. Given that $69 per share is lower than where Genzyme is currently trading, I doubt a tender offer would get too warm a reception.
The danger here is that Sanofi could start negotiating with itself, increasing its bid without a counter-offer. Unless someone comes over the top -- like Eli Lilly (NYSE: LLY ) did, when it outbid Bristol-Myers Squibb (NYSE: BMY ) for ImClone Systems -- it can be hard to know when to stop and walk away.
While it's fun to watch the courtship turn potentially hostile, investors need to be careful here. There's potential to make money on an increased bid, but if no one is willing to purchase the biotech for north of $70 per share, investors aren't likely to assume the risk until it turns around by valuing Genzyme this high. Figuring out the likelihood that Sanofi or another bidder will cave into Genzyme's demands is difficult -- even with leaks from both camps.
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