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Sanofi-Aventis (SNY) After Genzyme Corp. (GENZ) Again in Merger Discussion

|Includes: Sanofi (SNY)

It was last August that French drug maker Sanofi-Aventis publicly disclosed that it had made an offer to buy Genzyme after approaching the company two months earlier in friendly merger discussions. The $18.5 billion bid represented a $69 per share offer, which at the time was at a nearly 40 percent premium to Genzyme’s share price before investors got wind of the merger talks and sent shares of GENZ surging north to the area of $70 in late July.

Negotiations at that time ended without any terms being reached as Sanofi’s CEO, Christopher Viehbacher described discussions as being thwarted by Genzyme’s management. In a letter to Genzyme’s CEO, Henri A. Termeer, Mr. Viebacher summarized the dialogue between the two companies as not moving forward because Mr. Termeer seemed to “remain unwilling to have constructive discussions.” Neither Mr. Termeer, nor Genzyme officials commented on the statement.

The Wall Street Journal broke a story this week that Sanofi is once again pursuing Genzyme and that the two companies’ financial representatives are back in merger discussions; this time with an increased value of $80 for each share of GENZ. Although not citing sources, WSJ said this does not mean that a deal will happen.

In talks last year, it was reported that Genzyme had responded to the idea of a merger with a quick “no” before negotiations even began to discuss the price that Sanofi would be willing to offer. Discussions have always remained friendly with no signs of any sort of a hostile takeover, which would mean that Sanofi would take its price offer directly to the Genzyme shareholders.

The rationale behind motivation of either company has also not been disclosed. Sanofi had stated last year that it would continue to try and grow its company through acquisitions of some smaller biotechs, but clearly, Genzyme is not a small company, as it is a world leader in drugs for genetic diseases. The interest by Sanofi could be due to the fact that generic drugs are impacting sales of its lead drugs, Lovenox and Plavix, or could be related to its patent for Plavix being up next year. Sanofi could be looking to capitalize on late-stage drugs in development by Genzyme that, if approved, could be brought to market around the same time that it will lose its Plavix patent. Along with a host of drugs in its pipeline, Genzyme has Campath (alemtuzumab) for multiple sclerosis in Phase III clinical trials and mipomersen for cholesterol in late stage human trials as well.

The acquisition price has had no figures or terms verified, but Reuters did report that, according to its sources, the purchase price could include a contingent value right (NYSEMKT:CVR). A CVR is a type of right given to shareholders of an acquired company that ensures they receive additional benefit if a specified event occurs. In the case of Genzyme, it is believed that the CVR will be related to Campath reaching FDA approval and part of the revenue that is generates over a specified period of time.

While speculation is ongoing, investors will be keeping a close eye on these companies and their relationship heading into the second trading week of 2011 for any word of a deal finalization approaching or even hints about the offer price being discussed.

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