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VIDEOHistory Predicts Genzyme Will Sell For $80 Per Share
A historical analysis of unsolicited bids shows that there's a high likelihood Genzyme will be acquired by someone.
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This is the pickle that most Genzyme (GENZ) investors find themselves in at the moment. Speculation was rabid for months that the beleaguered biotech was being pursued by French pharma Sanofi-Aventis (SNY), but wasn’t until just last week that the news was confirmed by both companies. Now that Genzyme’s board has rejected Sanofi’s $69 per share bid (worth $18.5 billion), investors are faced with the prospect that Sanofi could turn tail and run, a white knight will swoop in and push the price higher, or things could stagnate -- pushing the stock down.
So how is an investor to know how this mysterious process will pan out -- well, history can help. According to Leerink Swann analyst Joshua Schimmer, “Precedents in health care suggest the probability that Genzyme will be sold is close to 90% and that the terms will be reached within the next six months at around $80 per share.”
Schimmer came to this conclusion by evaluating 86 unsolicited bids -- both in and outside of the health-care arena -- that have taken place over the last seven years. “While we recognize that each potential M&A transaction is unique, we use our historical precedent analysis to guide our valuation and rating as a more tangible methodology,” he added.
Leerink Swann now gives Genzyme an Outperform rating (it had previously suspended judgment based on the murky circumstances surrounding the potential deal). M&A, particularly unsolicited offers, often turn into a total mess. This comes from the nature of the bid being offered to a company that wasn’t necessarily on the market to begin with. Things get messy when investors and board members disagree with the value that a suitor has placed on their company. In the case of Genzyme, the board has already rejected the $69-per-share offer as way too low. In a letter to Sanofi CEO Chris Viehbacher, Genzyme said, “The Genzyme board is not prepared to engage in merger negotiations with Sanofi based upon an opportunistic proposal with an unrealistic starting price that dramatically undervalues our company.”
So what does history tell us about deals like this? According to the analysis done by Leerink Swann, that unsolicited offers in the health-care sector pan out more often than those outside the sector -- 60% compared with 44%.
Beyond that, 90% of health-care deals that are valued at a price over $1 billion end in a successful acquisition. That doesn’t necessarily mean that Sanofi is going to be the suitor to win Genzyme’s slightly gnarled hand -- health-care acquisitions where a white knight swoops in with a higher bid happen slightly more often than when the initial bidder gets the prize.
While Genzyme does have its fair share of problems (a consent decree and loads of manufacturing issues, as well as new competition for its best-selling products), the biotech garners a hefty price tag; likely somewhere in the ballpark of $20 billion. A rate that high doesn't leave many white knights who have purses bountiful enough to step forward. Schimmer suggests GlaxoSmithKline (GSK) has the balance sheet to handle such an acquisition, but Glaxo Chief Executive Andrew Witty has been very outspoken about only doing small, bolt-on acquisitions.
For now, Genzyme is stuck at a price of $69 per share -- Sanofi has said it won’t bid against itself -- and the likelihood of a white knight coming in to up the bidding is slim. This leaves the option that no deal is ever reached. If these companies can’t find a way to compromise, it’s likely that Genzyme’s shares will fall back to pre-speculation levels. Genzyme closed at $49.86 on July 1, the day prior to the first bit of speculation. (Although Schimmer is hopeful that the biotech would only fall to about $56 to $59 per share).Twitter: @biowriterchik
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