Certificates used by Sanofi-Aventis SA to win Genzyme Corp started trading at a steep discount to their best-case value on Monday after the French drugmaker gained control of the biotech group.
Taking over U.S.-based Genzyme gives Sanofi a new business in treating rare diseases that is expected to boost earnings from the first year after completion, offsetting lost revenue from drugs facing generic competition.
Investors holding 84.6 percent of Genzyme accepted Sanofi's bid of $20.1 billion offer, or $74 a share, the French company said in a statement.
Shareholders are also receiving one so-called contingent value right (CVR) per share entitling them to future payments if specified milestones relating to several Genzyme drugs are met.
The CVRs trade on the U.S. Nasdaq market under the ticker
and, as expected, are selling for less than their potential value.
The CVRs started trading on Monday at $2.30 each and moved up to $2.35 by 1355 GMT, against a maximum possible payout of $14. A grey market had valued them at $2.23 on Friday.
Mark Schoenebaum, an industry analyst at ISI Group, said he believed the CVRs should be valued at around $2.30 to $2.60.
Holders will only receive the full $14 per CVR -- worth some $3.8 billion -- if Genzyme's experimental multiple sclerosis (MS) drug Lemtrada is approved by regulators and meets its most ambitious sales targets by 2020.
The deep discount in the traded CVR price reflects the long time-frame and the risks associated with Lemtrada, which is already sold under the brand name Campath for cancer but has yet to be approved in MS.
Expected sales of Lemtrada was a key bone of contention between the two companies during the takeover battle.
BRAKES ON OTHER DEALS
Sanofi is to give remaining Genzyme shareholders a further four days until Thursday to tender their shares.
Sanofi Chief Executive Chris Viehbacher suggested the deal would put the brakes on further big transactions for now.
When you spend 20 billion, you lock in that strategy ... if we do it, that means we don't do other things, he told BFM Radio.
Up until now, transactions of 1, 2 billion, well, that doesn't prevent the group from being flexible, but 20 billion, that stops us in fact from doing other transactions.
The CEO also said the purchase of Genzyme, which Sanofi will make its rare diseases arm, marked a new phase for the company and that it was time to simplify its name.
Sanofi-Aventis is a very complicated name to say in several languages, in China, as in the United States, and with the acquisition of Genzyme, in the end we said, well, we have a bigger family and now in the future we are the Sanofi family, he said.
The integration process for the two companies was progressing well and remains on track, Viehbacher added in the statement.
Sanofi clinched its long-sought deal to buy Genzyme in February when it sweetened its offer to include CVRs and more cash. Genzyme's board unanimously recommended it.
Genzyme investors can be paid $1 per CVR if Genzyme meets specified production levels of Cerezyme and Fabrazyme this year after the two key rare disease drugs were in short supply due to contamination problems at a manufacturing plant.
Another dollar will be paid if the U.S. health regulator, the Food and Drug Administration (FDA), clears Genzyme's Lemtrada multiple sclerosis drug for marketing, which could come in 2012 or 2013.
Sanofi shares were down 0.1 percent at 50.22 euros.
(Additional report by Caroline Jacobs; Editing by Vinu Pilakkott and Mike Nesbit)