Biotech company Genzyme Inc rejected an $18.5 billion buyout offer from French drugmaker Sanofi-Aventis SA on Monday, setting the stage for a protracted and potentially hostile takeover battle.

Genzyme Chief Executive Henri Termeer told Sanofi CEO Chris Viehbacher in a letter that his proposal of $69 a share -- made public a day earlier -- dramatically undervalued the U.S. company and did not justify entering talks.

Viehbacher, dubbed the Smiling Killer by some Sanofi staffers for his cost-cutting zeal, hit back on a call with investors and analysts. He said he was in no hurry and did not expect the process to conclude quickly, but hinted that Sanofi could take a hostile offer directly to Genzyme shareholders.

Viehbacher's patience may be limited and Sanofi could make a hostile offer within a few weeks, a source familiar with the situation said. The source was not authorized to speak with the media.

We are putting $18.5 billion on the table and that's not being taken seriously, Viehbacher said. The number of players who can mobilize $18.5 billion in cash for Genzyme is pretty limited.

Genzyme investors polled by Reuters on Monday said they wouldn't accept anything under $75 per share and would support the company if Sanofi attempts to go hostile.

I think, with what they are offering, Sanofi will get as far with Genzyme's investors as they did with its board, said Michael Obuchowski, chief investment officer at First Empire Asset Management.

Sanofi wants to buy Genzyme, a leading maker of drugs for rare diseases, to fuel growth as some of its key treatments lose patent protection. Sanofi shares have lost 18 percent this year, while the European healthcare sector is up 3 percent.

Viehbacher said the transaction would not require it to raise fresh capital or put its credit ratings and dividend policy at risk. He also pointed to significant cost savings and a boost to earnings and revenue.

They could be obliged to slightly increase the offer in order to have important shareholders' approval, said CM-CIC Securities analyst Arsene Guekam. For me, it's the first price. Now (Genzyme) management is forced to engage in a dialogue with Sanofi. Even if they say 'no,' they have to justify why.

Genzyme shares rose 3.5 percent to $69.99 on the Nasdaq. Sanofi shares closed up 0.7 percent at 45.56 euros, in line with the Stoxx 600 European health care index.


After more than a month of unconfirmed, low-level contacts between the sides, Sanofi went public with its $69 per share non-binding cash offer for Genzyme on Sunday.

Viehbacher circulated a letter sent August 29 to Termeer after several failed attempts to start talks and said Genzyme was stonewalling.

Sources previously told Reuters that Genzyme wanted an offer of at least $75 per share before Sanofi could review its books, while some investors want up to $80 a share in a deal.

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 the company, Termeer said in his letter.

He added that Sanofi's offer does not take into account promising drugs in Genzyme's pipeline or its efforts to fix manufacturing problems that led to shortages of two top drugs -- Cerezyme for Gaucher disease and Fabrazyme for Fabry disease. The manufacturing crisis has hit Genzyme's profits and share price in the past year.

Genzyme also said Sanofi's offer was unanimously rejected by its board, which includes activist shareholders Relational Investors and Carl Icahn.

As recently as June the company was locked in a proxy battle with Icahn, who had sought Termeer's removal from the board, but then reached a settlement to include two of his directors. Now Icahn may help Genzyme convince shareholders, or another bidder, that it is worth more.

Genzyme, which is still trying to sell three noncore businesses, has reached out to potential white knight bidders, a second source familiar with the situation said. But it has yet to see an alternate suitor emerge.

Some analysts see the potential for Sanofi to go hostile with a bid that is even lower than the current proposal, as Roche Holding did in 2008 when it took its offer for U.S. biotech Genentech directly to shareholders.

I don't think there is a white knight out there. I think this is the only offer Genzyme shareholders will see, said Navid Malik, an analyst at Matrix Corporate Capital in London. He sees Genzyme shares dropping below $60 without the deal.