How Sanofi Bid Against Itself to Raise Genzyme's Buyout Price
Sanofi-Aventis (SNY) and Genzyme (GENZ) are discussing an $80/share deal that could bring to an end their protracted, frustrating M&A negotiations and end the longest running show on Broadway for pharma watchers. That show goes on tour to San Francisco tomorrow when Sanofi CEO Chris Viehbacher and Genzyme boss Henri Termeer are scheduled to deliver unrelated PowerPoint shows at a drug conference while pretending their dueling presentations have nothing to do with the acquisition.
If the pair do come to terms at that price it will be a coup for Genzyme: Sanofi initially offered $69/share and even though lots of other drug companies sniffed at the company, none emerged as competing suitors. So how did Sanofi manage to bid up the price against itself?
The official explanation is that the two sides disagree over how to value Lemtrada (alemtuzumab), Genzyme's experimental multiple sclerosis drug that will be a blockbuster if it gets to market but faces several hurdles before that happens. So the companies are discussing a "contingent value right," in which Sanofi will increase its bid by a dollar or two and agree to increase it further if Lemtrada meets certain milestones.
But that's the technical stuff. The strategic part is much more interesting. The talks are following a course I predicted last summer: Sanofi increased its $18.5 billion bid in a move that saves face for Genzyme, and will eventually conclude the deal at a price nearer $20 billion. This prognostication didn't take much brainwork as Sanofi's board of directors heard in July last year that the company had a $20 billion warchest for an unnamed acquisition.
Viehbacher thus revealed to Termeer his shopping budget months before kicking Genzyme's tires. By amazing coincidence, Termeer now believes that Genzyme is worth almost exactly the same amount of money that Sanofi has on hand from its banks!
The obvious lesson here -- whether you're buying a company or a car -- is that telling the seller how much you're prepared to pay before you start negotiating is rarely productive.
Related: