French drugmaker Sanofi-Aventis SA has agreed to buy Genzyme Corp. with a sweetened $20.1 billion cash offer, plus payments tied to the success of the U.S. biotech group’s drugs, the companies said on Wednesday.
The acquisition, which comes nine months after Sanofi CEO Chris Viehbacher first put the idea to Genzyme’s Henri Termeer, is expected to boost Sanofi’s earnings from the first year after completion by giving it a new platform in rare diseases.
Sanofi will pay $74 a share in cash and offer a tradable contingent value right, or CVR, whose value will depend on Genzyme’s experimental multiple sclerosis drug Lemtrada and production of two other medicines.
The deal’s announcement, which confirmed what sources with knowledge of the talks had told Reuters Tuesday, marks the second-biggest in biotech history and will help Sanofi offset declining revenue from drugs that have lost, or are set to lose, patent protection.
Sanofi predicted the deal, which is expected to close early in the second quarter, would lift its underlying earnings by between 0.75 and 1.0 euro per share by 2013.
The CVR runs until the end of 2020 and entitles holders to a series of payments worth up to $14 per share in total, depending mainly on the success of Lemtrada.
In theory, that could add $3.8 billion to the price tag, but the market value of the CVR is expected to be deeply discounted given uncertainties about future Lemtrada sales, the long time horizon and the fact many investors will not want to hold such an instrument.
Tim Anderson, an analyst at Sanford Bernstein, said Sanofi would probably end up making payouts of no more than $4 per CVR, or around $1.1 billion, while Viehbacher told reporters that market estimates the CVR would trade at between $2 and $3 “may not be unrealistic.”
“What we anticipate is that there will be a lot of sellers of that CVR, which is going to trade like an option,” said Jean-Francois Comte, portfolio manager at Paris-based hedge fund Lutetia Capital. “So there might be another arbitrage opportunity on the CVR in the next few days.”
