[Ip-health] Bloomberg: Sanofi's Viehbacher Secures Genzyme Growth With Hard Line Offer
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Fri Mar 11 03:52:15 PST 2011
Sanofi's Viehbacher Secures Genzyme Growth With Hard Line Offer
By Albertina Torsoli and Michael Waldholz - Feb 17, 2011 12:01 AM GMT
+0100 Wed Feb 16 23:01:50 GMT 2011
When Chris Viehbacher, the chief executive of Paris-based drugmaker
Sanofi-Aventis SA, was trying to keep details of his unsolicited bid
last year for Genzyme Corp. under wraps, he couldn’t resist drawing on
his beloved Bordeaux.
“I really like French wines,” the 50-year-old German- Canadian said
yesterday after sealing his sometimes rancorous nine-month pursuit of
Cambridge, Massachusetts-based Genzyme, an acquisition valued at $20.1
“We had to have a code name. It was largely around P for Paris and M
for Massachusetts, so we said Petrus for us and Margaux for them,” he
said in an interview. “The project was Grand Cru. I couldn’t find a
good wine that started with a G.”
Buying the world’s largest maker of biotech drugs for inherited
diseases marks the 29th and largest deal since Viehbacher joined
Sanofi in December 2008. In little more than two years, he has added
everything from Gold Bond medicated powder to Chinese cough remedies
and an Indian vaccine maker as part of his plan to broaden the
company’s revenue base. That’s critical as Sanofi’s best-selling
pharmaceuticals, including its blockbuster blood thinner Plavix, face
“Genzyme is a huge achievement for Chris Viehbacher,” said Lionel
Melka, co-manager of Paris-based Bernheim, Dreyfus & Co.’s Diva
Synergy Fund. “It turns the company from being a value stock into a
Shot in Arm?
The question remains whether the long list of businesses Sanofi has
amassed will provide the shot in the arm Sanofi was looking for when
it hired Viehbacher, who months earlier had lost out in a three-way
competition for the top job at London- based GlaxoSmithKline Plc. His
task now is to meld these disparate operations into a coherent whole
to produce years of growth.
Viehbacher’s resume suggests he may be able to pull it off. At Glaxo,
he played a critical role in the company’s successful integration with
rival SmithKline. At the same time, all the skill he has brought to
bear to acquire companies for Sanofi hasn’t always yielded pay dirt.
Ten weeks into the job he personally oversaw the courtship of BiPar
Sciences Inc., a fledgling biotech with an innovative approach to
cancer. Yet, last month, BiPar’s flagship drug failed in a study to
“The toughest part has yet to begin for Viehbacher,” Frederic Aubel, a
sales trader at Global Equities in Paris, said in a telephone
interview. “He will have to deliver now and make sure that the $20
billion he put on the table becomes profitable for Sanofi. It won’t
Sanofi has returned 32 percent including reinvested dividends since
Viehbacher became CEO, outpacing the 28 percent return in the
Bloomberg Europe Pharmaceutical Index. Sanofi’s consumer-health sales
jumped 46 percent last year, most notably because of the $1.9 billion
purchase of Chattem Inc., the maker of Gold Bond. The company’s
generic-drug business has also risen 42 percent following the
purchases of Medley SA and Zentiva NV in 2009.
Yet investors place a lower valuation on the French company than on
almost any large drugmaker, reflecting skepticism that Viehbacher’s
buying spree will pay off as advertised. Sanofi yesterday rose 1.75
euros, or 3.5 percent, to 51.55 euros in Paris. The shares have
climbed 19 percent since Viehbacher became CEO.
“Viehbacher must rebuild Sanofi but he also needs to help the company
find once again the profile of a growth stock, like the Sanofi we knew
in the past,” said Jerome Forneris, who helps manage $12 billion,
including Sanofi shares, at Banque Martin Maurel in Marseille. “This
is the challenge for Viehbacher, finding strong growth once again.”
Want a Dividend
Sanofi itself was created through the merger of more than five
different companies, including the German chemical maker Hoechst AG.
Viehbacher acknowledges that he will be measured by how well he can
combine the new operations into a top-tier performer.
“People want a dividend at the end of the year, they want a higher
share price, and employees want an increase in pay,” he said in an
interview yesterday. “You can’t do that unless you have a company
that’s growing. And it has to be sustained growth.”
Viehbacher took over a company that had failed to develop enough drugs
to replace those losing patent protection. In 2007, U.S. regulators
rejected Sanofi’s once-heralded obesity pill, Acomplia. When the
Multaq heart medicine won the backing of the Food and Drug
Administration in 2009, it was the company’s first major U.S. approval
in seven years. The result of the drought: Sanofi’s sales and profit
in 2013 and before before the Genzyme acquisition will be the same as
they were in 2008, the company has forecast.
Viehbacher began pursuing Genzyme last year. At the time, Sanofi had
decided it was a good time to make a larger acquisition than it had
completed until then because “debt was cheap,” Viehbacher said. In
addition, Genzyme, which reached a high of $83.25 in August 2008, fell
to $47.16 last June after manufacturing snags cut into sales of its
biggest products following a 2009 virus contamination at a factory in
Sanofi also wanted to avoid getting into a bidding war. As Sanofi’s
competitors appeared to be “tied up with other things,” Viehbacher
said, “we weren’t surprised when no other bidder showed up.”
Genzyme was also appealing because it would bootstrap Sanofi into
biotechnology, an area in which the French company was weak, as well
as provide a research presence in the U.S. to attract scientists
there. Viehbacher said that by early last year the company had five
targets on its list and that, finally, “Genzyme kind of came up at the
In a May 23 conversation, according to a Sanofi filing last year with
the U.S. Securities and Exchange Commission, Viehbacher approached
Henri Termeer, Genzyme’s 64-year-old chief executive, about a bid.
Termeer, who built Genzyme beginning in 1983 by developing treatments
for rare diseases other companies ignored, rebuffed Viehbacher’s
unsolicited offer for months. In a regulatory filing, he described the
$69 offer as “an opportunistic proposal with an unrealistic starting
price that dramatically undervalues” the company.
Still, Termeer had few bargaining options, and Viehbacher refused to
raise the offer. When no other buyers surfaced, Viehbacher waited as
pressure from Genzyme shareholders built.
“Viehbacher played better poker than Termeer,” said Erik Gordon, who
teaches at the University of Michigan’s Ross School of Business in Ann
Cell Phone Calls
It wouldn’t be the first time Viehbacher would need to use his
personal skills. A year earlier, Viehbacher phoned Hoyoung Huh, the
CEO of BiPar, the South San Francisco-based cancer biotech company.
Viehbacher asked Huh, who was getting on a flight to Geneva, to drop
by for a chat, lunch and some “good French wine,” Huh recalled in an
interview. Viehbacher explained he was trying to transform Sanofi and
persuaded Huh to consider the French drugmaker as a potential buyer,
as there were other suitors.
“He called on my cell phone on a weekly basis” over the next few
months, Huh said. “He would call as he was walking his dog and I was
at soccer with my kids, just to make sure our teams weren’t getting
bogged down in the deal mechanics.”
It took until Sept. 20 to get the Dutch-born Termeer to sit down and
discuss the offer. The tension between the two parties is apparent
from U.S. Securities and Exchange Commission filings that detail
conflicting accounts of the talks.
In its filing, Genzyme says that Viehbacher indicated the company
might be willing to raise the bid to as much as $80 if Termeer named a
price at which bargaining could begin. Termeer refused, according to
the document, even though Viehbacher said doing so might cause him to
make a hostile tender offer.
After the filing was made public in October, Sanofi spokesman Jean-
Marc Podvin said no such price was mentioned and that Sanofi “strongly
disagreed with Genzyme’s characterization of the meeting.”
Two weeks later after beginning the tender offer, Viehbacher said in a
Bloomberg Television interview, “I’m not going to bid against myself”
to explain his unwillingness to raise the bid. Viehbacher also told
advisers he wouldn’t budge until he was able to look over Genzyme’s
books, according to two people familiar with the discussion.
By last month it was clear that Viehbacher had convinced Genzyme
holders and that even Termeer was resigned to the deal. Both men
attended the J.P. Morgan Healthcare Conference in San Francisco, where
it was clear a resolution was being worked out.
‘Not a War’
“This is not a war,” Termeer said in a Jan. 11 interview at the
conference. At the beginning, “it was a little bit tense. But it never
deteriorated; it actually improved. We found a way to talk.”
The previous day both companies said their financial advisers and
other representatives from both firms had met to discuss a contingent
value right plan, or CVR, related to milestones for Genzyme’s multiple
The men met when they were both attending the World Economic Forum in
Davos, Switzerland, the last week of January. At the meeting, they
discussed a way to raise the offer. All along Termeer argued that
Sanofi’s bid didn’t account for the potential of Genzyme’s most
promising product, the multiple sclerosis drug called Lemtrada.
To value the drug, while also hedging his bet, Viehbacher suggested
attaching a contingent value right, or CVR, to the offer that would
rise in value if the drug reached certain milestones. At a
mountainside hotel at the Swiss ski resort the CEOs discussed the CVR
over a glass of scotch.
The final agreement, which came together in the past few days, will
give Genzyme holders one contingent value right per share that may
ultimately be worth $14 if Lemtrada reaches $2.8 billion in sales.
The solution let Viehbacher win Genzyme, without having to pay up
unless the drug’s promise is proved. Viehbacher says he will gladly
pay if that happens.
“I told Henri that if we have to pay the last milestone, I’ll bring
him the check personally and with his favorite wine to accompany
that,” Viehbacher told analysts yesterday.
To contact the reporters on this story: Albertina Torsoli in Paris at atorsoli at bloomberg.net
Michael Waldholz in New York at mwaldholz at bloomberg.net
To contact the editor responsible for this story: Phil Serafino at pserafino at bloomberg.net
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