PREVIEW-UPDATE 1-Sanofi seen prolonging Genzyme bid to mull CVRs

* Extension may help deal on contingent value rights

* Milestone agreement linked to Campath seen challenging

* CEOs may cross paths at Davos meeting in January
(Adds additional source comments on strategy)

By Caroline Jacobs and Noelle Mennella

PARIS, Dec 7 (BestGrowthStock) – Sanofi-Aventis SA (SASY.PA: ) will
likely buy time by extending its $18.5 billion cash offer for
Genzyme Corp (GENZ.O: ) and try to hammer out a deal that may
involve a higher pay-out if the U.S. biotech meets milestones.

The odds are that hardly any Genzyme investors will have
handed their shares this weekend to Sanofi for $69 each while
they have been trading at $70.24, on average, since July 23,
when stories broke of Sanofi’s interest in the group.

The French drugmaker’s tender offer for Genzyme ends at
11:59 p.m. New York time on Friday. Sanofi, which is expected
to extend the offer by 50 days, must make a statement before
the U.S. stock markets open on Monday.

Sanofi launched the offer on Oct. 4, frustrated by the
refusal of Genzyme’s board refusal even to sit down and talk.

Prolonging the tender would give both companies time to
reach a deal. One scenario includes linking Genzyme’s value to
the future performance of its key experimental multiple
sclerosis drug, Campath, people familiar with the situation

“Such a scenario is not absurd,” said one source close to
the matter, who declined to be identified because he was not
authorized to speak to the media.

Through contingent value rights (CVRs), Sanofi could end up
paying Genzyme investors more if Campath proves to be the
success that Genzyme expects. But investors will need

“Genzyme is pushing hard on this concept, but Sanofi hasn’t
necessarily bought into this,” said a second source, who
declined to be named because he was not authorized to speak to
the media.

The second source said Dec. 10 was not a hard deadline for
Sanofi but just one point in a process, and Sanofi did not feel
under pressure to raise its bid at the moment.

A third source added: “Genzyme believes heavily in the
value of Campath and is willing to gamble on that. That doesn’t
mean, though, that discussions of a higher outright price are
off the table.”


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For other stories on Genzyme bid battle: [ID:nN20244039]


The two sides have not had direct CEO-level talks, but
their advisers have been in contact, two of the sources said.

Viehbacher and Genzyme’s Henri Termeer have met only once,
on Sept. 20, to discuss the situation, but the two men may well
bump into each other again next month in Davos, when they are
both expected to attend the annual World Economic Forum, from
Jan. 26 to 30.

Whether they have anything to discuss will depend on
progress in behind-the-scenes talks between their advisers.

“Extending the offer as it stands seems somewhat futile but
extending it to bide time and negotiate a CVR and then increase
the offer could be a strategy,” Collins Stewart analyst
Emmanuel Papadakis said. “Sanofi would likely rather base a
higher offer on a CVR than increase it just to get talks

Sanofi has dismissed Genzyme’s $3.5 billion sales estimate
for Campath as “unrealistic” and has pulled together analyst
forecasts giving a $700 million sales average.

Termeer said last month he was open to a CVR for Campath
and Sanofi’s finance chief, Jerome Contamine, told Reuters last
week that using such a mechanism to bridge valuation disputes
was interesting in principle. [ID:nLDE6B01WV]

“Everyone is pitching the idea of a CVR, but that’s not the
only option,” the third source said.


Viehbacher has repeatedly said he is in no rush and that
the Genzyme situation would not distract from other issues.
Analysts agree a CVR could help break the deadlock, though
negotiating the terms will be challenging.

“It will be hard for Sanofi to prove to Genzyme
shareholders that it did its utmost to maximize the value of
Campath. After all, Sanofi needs to try and maximize the value
of its entire multiple sclerosis franchise and not just of one
product,” said a Frankfurt-based analyst who asked not to be
named. Sanofi sells its own MS treatment, Copaxone, and is
developing teriflunomide.

When Fresenius (FREG_p.DE: ) bought infusion drugmaker APP
Pharmaceuticals in 2008, its takeover price had a tradeable CVR
attached that could deliver an extra payment of up to $6 if APP
exceeded core earnings targets. The rights (APCVZ.O: ) now trade
at just 4 cents.

At any rate, analysts are convinced Sanofi will ultimately
need to increase its bid for Genzyme. Genzyme shareholder and
board member Ralph Whitworth said early this month the
ingredients for a deal were there but that the current offer
was “not even a good starting point.” [ID:nN02273530]

Buying Genzyme would give Sanofi a new area for growth, the
high-margin business of rare diseases, as it seeks to diversify
its business to make up for patent losses that will take out
roughly a third of its 2008 sales base through to 2013.

Sanofi shares have dropped 11 percent this year compared
with a 4.5 percent rise in the European healthcare sector
(.SXDP: ). Trading at 6.9 times their expected earnings per
share, they are the cheapest among big European pharma stocks.
(Additional reporting by Julien Ponthus and Blaise Robinson in
Paris, Ben Hirschler in London and Jessica Hall in
Philadelphia; Editing by Steve Orlofsky)

PREVIEW-UPDATE 1-Sanofi seen prolonging Genzyme bid to mull CVRs