French drugmaker Sanofi-Aventis SA clinched its long-sought deal for Genzyme Corp with a sweetened $20.1 billion cash offer, plus payments tied to the success of the U.S. biotech group's drugs.

The deal announced on Wednesday comes nine months after Sanofi Chief Executive Chris Viehbacher first put the idea to Genzyme's Henri Termeer and gives Sanofi a new platform in rare diseases.

It is expected to boost Sanofi's earnings from the first year after completion, offsetting revenue losses from drugs facing generic competitors for the first time.

The deal's announcement, which confirmed what sources with knowledge of the talks told Reuters on Tuesday, marks the second-biggest acquisition in biotech history after Roche's $46.8 billion purchase of Genentech in 2009.

Sanofi will pay $74 a share in cash and offer a tradable contingent value right, or CVR, whose value will depend on Genzyme's experimental multiple sclerosis drug Lemtrada and production of two other medicines. It initially offered $69 per share in cash in August, but was rebuffed by Genzyme.

The CVR runs through 2020 could pay as much as $14 per share, or $3.8 billion, if Lemtrada meets its most ambitious sales targets.

Analysts expect the CVR will be highly discounted in the market when issued, given the risks tied to a new drug that has yet to be approved and the long time-frame. Genzyme shares rose 1.5 percent to $75.38 on Wednesday, suggesting Wall Street assumes a CVR value just over $2, said one investor.

There will be a lot of sellers of that CVR, which is going to trade like an option, said Jean-Francois Comte, a portfolio manager at Paris-based hedge fund Lutetia Capital. So there might be another arbitrage opportunity on the CVR in the next few days.

Sanofi thinks the highest CVR payout is unlikely to be reached, but would welcome it nonetheless.

I told Henri, if we have to pay the last milestone I'll bring him the check personally and with his favorite wine to accompany that, Viehbacher said. The CVR was an extremely important tool to bridge differences in value.

At the same time, other big pharmaceutical makers could consider a CVR in future deals now it has become a cornerstone of a large acquisition like Genzyme, helping to mitigate risk as they seek new revenue sources.

This will set a precedent for other large pharma companies to use CVRs more, said Jim Prutow, a partner in the healthcare practice at PRTM, a management consulting firm. CVRs provide an excellent mechanism for deals to get done at a time it is becoming increasingly difficult to predict if you will get a drug approved or how it will perform commercially.

LENGTHY STAND-OFF

Wednesday's deal follows a lengthy stand-off between Viehbacher and Termeer, a Dutchman who has led the company for more than 25 years. He will resign as chairman and CEO of Genzyme when the transaction is completed.

Genzyme was the first company to show that money could be made by making drugs for diseases with small patient populations. In 2010 it generated revenue of $4.1 billion, enough to replace roughly a third of the sales Sanofi is expected to lose through 2013 to generic competition.

Termeer was reluctant to sell the company that had come to define him, but had to placate investors after a manufacturing crisis caused a shortage of key Genzyme drugs. By May last year, the company's shares had fallen 46 percent from a high of nearly $84 in July 2008.

Viehbacher said rare diseases represented a huge unmet need, with around 6,000 to 7,000 such disorders in the world for which there are treatments for only about 10 percent. It is a huge area of opportunity, he said.

Competition in the space is growing but Viehbacher said Genzyme's position was strong. Genzyme is really the gold standard in patient-centric care and we believe the Genzyme brand will be able to protect that franchise, he said.

Sanofi predicted the deal, which is expected to close early in the second quarter, would lift its underlying earnings by between 0.75 and 1.0 euro per share by 2013.

Sanofi's shares rose 3.5 percent as investors welcomed the boost. Vincent Meunier, an analyst at Exane BNP Paribas, said the forecast of a 12 to 16 percent uplift to 2013 earnings was above his expectation of 10 percent, although the drugmaker gave no breakdown on how it would achieve savings.

Genzyme, which posted a quarterly profit on Wednesday within its forecast range, said it would have to pay Sanofi a fee of $575 million if the deal was scrapped.

Credit Suisse and Goldman Sachs advised Genzyme. Evercore Partners and JPMorgan were Sanofi's lead advisers.

(Additional reporting by Toni Clarke, Jessica Hall, Tim Hepher, Ben Hirschler and Chris Vellacott; Editing by Michele Gershberg and Tim Dobbyn)