When All Else Fails, Sell!

After its train wreck of a year, Genzyme (Nasdaq: GENZ  ) is moving closer to getting back on track. The beleaguered biotech announced today that it's selling its genetic testing business to Laboratory Corp. of America (NYSE: LH  ) for $925 million.

The addition looks like a nice complementary pickup for LabCorp that should help in its eternal battle with Quest Diagnostics (NYSE: DGX  ) .

For Genzyme, the sale is a mixed blessing. If it weren't for its myriad manufacturing issues, maybe the company holds onto its genetic testing business, as well as its diagnostic products and pharmaceutical intermediates businesses that are also up for sale. But considering all that's happened, it's reasonable for the company to refocus on its bread-and-butter drug business.

When the company started the divestiture process, the cash from the sale was destined for a share buyback. Shares had sunk considerably and lowering the share count would likely have had a positive effect on earnings. Since then, shares have shot up after sanofi-aventis (NYSE: SNY  ) made an unsolicited bid for the entire company. With shares trading at more than 35 times this year's guidance for adjusted earnings, Genzyme might be better off pocketing the cash for a rainy day rather than going through with the buyback.

Might the sale affect Sanofi's courting of Genzyme? Probably not. Sanofi is mostly interested in Genzyme for its biologic drugs and pipeline. I'm sure the diversified pharmaceutical company wouldn't have minded picking up the genetic testing business; there's a future in diagnostics. But Sanofi could add expertise in genetic testing by buying another company -- Myriad Genetics (Nasdaq: MYGN  ) , for instance -- if it wants to go that route.

The divestiture is a good move for Genzyme, but its shares are still very risky. If Sanofi doesn't increase its $69-per-share bid, the share price will likely fall. Genzyme's move to focus solely on drugs might induce a bid from a company like Bristol-Myers Squibb (NYSE: BMY  ) or Eli Lilly (NYSE: LLY  ) , although Lilly has said that it doesn't expect to make a large acquisition. Genzyme would be an awfully large swallow for either company.

Smart management is only important if you can figure out what a company is worth, warns Michael Olsen.