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Sanofi/Genzyme Deal: an Interesting Twist

|Includes: SNY, Sanofi (SNY)

It's been more than nine months now since Sanofi Aventis (NYSE:SNY) has been dancing the big-money take-over dance with Genzyme (Nasdaq:GENZ).  Until recently, Genzyme has rebuffed Sanofi's offers, which led to an unsuccessful hostile takeover attempt by Sanofi for $69 per share back in October, 2010. 

 

Why would is the world's sixth largest drug maker so hot and heavy for Massachusetts-based Genzyme?    The prime attraction seems to be Genzyme's stable rare disease drugs.  This would add a new area of growth to Sanofi offerings.

 

After intense negotiations, it looks like a deal might be close, with closure rumored to be this week.  Both companies’ boards met yesterday to supposedly hash out the final deal.  IF they are able to pull this off, the transaction will be among the largest merger of the last several years. 

 

The latest offer, the one said to be likely accepted by analysts, includes an interesting twist.  This unique situation will be particularly attractive to small-cap investors since it will provide a low-cost way to directly play drug release success or failure.  Let me explain.  Sanofi has offered $74 per share for Genzyme.  This deal includes a little known instrument called a Contingent Value Right or CVR.  This CVR will trade on a stock exchange with its value being directly tied to the success or failure of one of Genzyme's drugs known as either Campath or Lemtrada.  If this drug hits its sales goals, the CVR could be worth $5 or $6.  It is suppose to enter the market at around $2 per share.  This opens up a whole new angle for small-cap bio tech investors in these companies. 

 

Sanofi is expected to release earnings on Wednesday.  Most analysts believe that the deal closure will be revealed prior to the earnings release.  However, given the unique factors inherent in this transaction, don't be disappointed if you have to wait a little longer …  Good trading!