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With Genzyme (GENZ) digging its heels in and Sanofi-Aventis (NYSE:SNY) refusing to raise its bid, taking the $69 a share offer straight to the US biotech’s shareholders was the logical next step for the French predator.

Considering Genzyme's stock has been trading higher than this for the last month, few investors will now choose to sell. However, the hostile move will increase the pressure on the board of the US biotech to sit down and start talking seriously. For this is undoubtedly what Chris Viehbacher, Sanofi’s chief executive, wants: to get his feet under the negotiating table and be able to conduct some real due diligence.

Valuation points

Other than reinforcing that Sanofi is serious about getting this deal done, Monday’s news brought little new information. On a conference call Mr Viehbacher reiterated that Sanofi still does not have any non-public information, having been repeatedly rebuffed, adding that the company remains “extremely committed” to the transaction.

For the pharma giant, the main sticking points on valuation remain how quickly and easily Genzyme's manufacturing problems can be resolved, and how much Campath in MS is worth.

On the former, Mr Viehbacher was keen to stress that these consent decrees take time and money to resolve, and could well hurt profit margins for the foreseeable future. On the latter, Sanofi is assuming Campath performs in line with analysts’ expectations, with a peak value of $700m; Genzyme is of the opinion this figure should be much higher.

Campath has a tricky side effect profile and development was stopped for a while because of this. Also, the MS space is becoming more competitive, Mr Viehbacher pointed out. Without a more detailed and open discussion, Sanofi is unlikely to change its opinion on value, he indicated.

Results from the first of two ongoing phase III trials with Campath are not due until mid-2011, meaning it will be a while before pivotal data is made public. With few signs that this saga is going to be anything but protracted, these data could well appear before a conclusion has been reached.

Growing strength

Sanofi is doing a very good job of making the Genzyme board appear stubborn and intractable. Knowing full well that the stock will sink to the mid-$50s should the French company walk away, many of the biotech’s shareholders will be pressurising for a change in this stance.

The hostile bid will sharpen minds in this regard, although whether this escalation in pressure will be enough to force Genzyme to the table is unclear.

Either way, to seal the deal Sanofi will have to raise its bid in the end. Mr Viehbacher can claim that more than half of Genzyme’s shareholders “support a transaction” but will not support it at $69 a share.

He knows this, and if press reports over the last few weeks are to be believed, Sanofi has been locked in negotiations with banks over financing, and has the fire power to sweeten this offer.

“We’ve got plenty of time and resources on our side,” Mr Viehbacher said today, pointing out that there does not appear to be any other bidders at this stage.

Today’s move indicates that a higher price is unlikely to emerge without a more open-door policy from Genzyme, and every day that passes without a white knight emerging, Sanofi’s position grows stronger.

Source: Sanofi Takeover Offer for Genzyme: The Pressure Is On