Genzyme rejects Sanofi offer, long battle looms

Genzyme Chief Executive Henri Termeer told Sanofi CEO Chris Viehbacher in a letter 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 staff for his cost-cutting zeal, hit back on a conference call with investors and analysts.

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

Viehbacher said he did not expect the process to conclude quickly and said he was in no hurry, but hinted that if Genzyme did not enter talks and open its books, Sanofi could take a hostile offer directly to shareholders.

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

Viehbacher said the transaction was not large and 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.

Sanofi confirmed its $69 per share non-binding cash offer for Genzyme on Sunday, publishing a letter sent last month to Genzyme's CEO after several failed attempts to start talks. Viehbacher said Genzyme was stonewalling.

Genzyme published Termeer's response to Viehbacher on Monday saying: 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.

Genzyme said its board unanimously rejected Sanofi's offer. It pointed out the board includes representatives of major investors, an apparent reference to activist shareholders Relational Investors and Carl Icahn, which hold 3.8 percent and 4.9 percent of Genzyme, respectively.

Sources previously told Reuters that Genzyme wants an offer of at least $75 per share before Sanofi could review its books. Some shareholders want as much as $80 a share to clinch a deal.

Genzyme said on Monday that Sanofi and its advisers claim Sanofi is willing to pay more but that the company is unwilling to bid against itself.

Genzyme shares rose 3.8 percent to $70.20 by 1615 GMT in New York. Sanofi shares closed up 0.7 percent at 45.56 euros, in line with the Stoxx 600 European health care index.

Viehbacher said Genzyme shareholders now faced the choice between continuing to bet on management, taking the Sanofi premium or betting an unknown company would enter the fray.

We see Sanofi's tactics to date as being good, weakening the Genzyme shareholder base already by blowing hot and cold via the press on a potential acquisition in the absence of any visible counter-bidder, Jefferies International analysts wrote.

There now seems to be a greater possibility of Sanofi-Aventis going hostile.

Some analysts suggested Genzyme, which is trying to fix manufacturing problems that led to shortages of two of its top drugs and had hit its stock price, may not get a better offer and that a hostile bid by Sanofi could even be lower.

Roche Holding cut its bid to buy out shareholders in U.S. biotech Genentech in 2008 when it turned hostile after Genentech rejected a previous offer, although it subsequently sweetened its offer in 2009.

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, adding that Genzyme stock would drop below $60 without the deal.

The Jefferies analysts saw a potential offer of $75 a share and said Sanofi may prefer the long game of waiting until Genzyme's annual meeting in May to let shareholders vote on a hostile bid.

Genzyme is the world's dominant supplier of drugs to treat Gaucher and Fabry disease -- rare, inherited disorders in which patients lack key enzymes for breaking down fats.

($1=.7861 Euro)

(Additional reporting by Ben Hirschler in Stockholm)

(Writing by James Regan; Editing by Michael Shields and Erica Billingham)