Sanofi Rights - Will A Seeking Alpha Post And Strategy Work?

| About: Sanofi (SNY)
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Summary

Would you buy something for $0.82 for the right to receive more than $2 in 60 days?

A Seeking Alpha message board post, if doable, could make GCVRZ a double, at worst.

A deal, if possible, would benefit all GCVRZ stakeholders.

Sanofi would be the only loser, at least with respect to the first, one-time cash outlay.

Disclosure: Shortly after a December 5, 2014, 1:17P (EST) post on Seeking Alpha, the author repurchased 82,600 Genzyme-Sanofi CVRs at a cost below $0.82, for the reasons stated in this article. The author may buy, sell or trade GCVRZ shares at any time, but these are IRA shares, so T+3 settlement and restrictive "pattern day trader" rules apply to trading frequency.

The below post appeared on a GCVRZ-related Seeking Alpha message board at 1:17P (EST) on Friday, December 5, 2014:

earljr1 So SNY has an incentive to just miss the $400M sales. We have to remember the market holds the other side of that bet. If we get close to the date and the sales are looking a little low, the rights will drop significantly. What is to stop someone with deep pockets from buying up a hundred million rights, then buying enough Lemtrada to get the total to $400M?

If Lemtrada sales reach $400MM, each common value right (CVR) holder is entitled to a $2 payout, plus the right to receive future payouts (an option or warrant with economic value greater than $0.00) based on additional sales milestones negotiated in the Genzyme-Sanofi merger. At this writing, the Lemtrada "options" closed below and are trading below $0.82. Ignoring (1) time value of money considerations and (2) assuming zero "option" or "warrant" value for the right to receive future payouts at later milestones, the following closing price-based discount or premium can be computed:

First Milestone Payout

$2.00

less:

Current Price per CVR

$0.82

equals:

Sanofi Payout, if First Milestone is Achieved

$1.18

The Sanofi Dutch Auction - Some Publicly Available Measures
On or about September 4, 2012, Sanofi offered to buy 30% of the outstanding Genzyme-Sanofi merger CVRs. They provided precise measures used to develop the number of CVRs outstanding at that point in time, as follows:

Sanofi Offer to Purchase

86,766,040

÷ 30%

Outstanding GCVRZ

289,220,133

On or about October 8, 2012, less than 60 days later, Sanofi announced the results of their offer. They purchased more than ~40MM CVRs at $70MM (US), or $1.75 per CVR, as follows:

Cost

$70,000,000

GCVRZ Units Purchased by Sanofi

÷ 40,025,805

Cost per CVR

$1.75

Using the measures produced and publicly disclosed by Sanofi…

Pre-Buy Back CVRs

289,220,133

CVRs Purchased by Sanofi

-40,025,805

Outstanding CVRs

249,194,328

At a cost of $2 per CVR, (1) those involved in the class action lawsuit against Sanofi can be made whole, (2) a generous, fixed fee can be generated for the attorneys forming the class and handling this litigation against Sanofi, and (3) an "across the board" refund (at least 10%?) can be provided for all having purchased Lemtrada and suffering from MS, a horribly debilitating disease. How often do you have an opportunity to play Robin Hood, and make a few dollars at the same time? Consider the following:

Outstanding CVRs

249,194,328

Payout >$0.82, 1st Milestone Achieved

x $1.18

$1.18

GCVRZ Premium, 1st Milestone Assured

$294,049,307

1st Sanofi Payout (249,194,328 x $2)

÷ $498,388,656

÷ $2.00

Percent or Net

59%

59%

At a $2 payout per Sanofi CVR, Sanofi will pay all GCVRZ holders nearly $½B ($498,388,656, from above, rounded). If you held and controlled 100% of the CVRs, you could "buy down" the cost of treatments for all MS patients qualifying for Lemtrada, worldwide, up to $400MM, and pocket nearly $100MM. Of course, no single individual or institution controls 100% of the CVRs, so you will have to (1) buy them, (2) "persuade" Sanofi that it is more costly for them to fail to buy them, or, (3) effectively, "control" the CVRs in some fashion similar or comparable to a proxy vote for shares of stock. Rights with economic value are separable. You need not take possession or ownership of the other rights of the CVRs or interfere with CVRs or their ownership for later post-Genzyme-Sanofi merger CVR sales or milestone payouts. The mere mention of the consideration of a deal of this sort will positively impact the market price of the CVRs, almost assuredly causing the value to rise to more than $2, and it just makes economic sense.

You Decide the Details and How the Pie is to be Sliced-Up and Divided

Run the numbers and divide the nearly $100MM, so far, any way you like. Some are already being treated with Lemtrada, so progress is already being made toward the $400MM first sales milestone and $400MM Sanofi payout. Therefore, the $100MM spread, which assumes zero sales or revenues, grows daily, as Lemtrada treatments are administered and Lemtrada revenues increase.

Disclosure: The author is long GCVRZ.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.