The Sanofi-Aventis Acquisition of Genzyme: Contingent Value Rights

Abstract

This case is designed for MBA students in M&A or derivatives courses. In January 2011, Sanofi-Aventis was finalizing its offer terms for acquiring Genzyme. The M&A valuation disputes were about the market potential of alemtuzumab, a drug in Genzyme's pipeline, and how quickly Genzyme could resolve some of its manufacturing issues. To bridge the gap in their estimates, advisers had suggested an up-front cash payment and a contingent value right (CVR). Was a CVR the magical solution to bridging the valuation gap?

Excerpt

UVA-F-1715

Oct. 22, 2014

THE SANOFI-AVENTIS ACQUISITION OF GENZYME:

CONTINGENT VALUE RIGHTS

At the end of January 2011, Henri Termeer, the CEO of Genzyme, and Chris Viehbacher, the CEO of Sanofi-Aventis (Sanofi), were both attending the World Economic Forum, a gathering of chief executives, heads of state, and other influential figures at the ski resort in Davos, Switzerland. The advisers of the two firms had spent countless hours discussing merger deal alternatives, and the private meeting between the CEOs was expected to close these negotiations.

Sanofi, a large French pharmaceutical company, had first expressed its interest in acquiring Genzyme in the summer of 2010. Termeer had led Genzyme for more than 25 years, overseeing its growth from an entrepreneurial venture to a top U.S. biotechnology firm. The main reasons Sanofi was attracted to Genzyme were its lucrative drug business that focused on hard-to-copy genetic diseases and its pipeline of drugs under development (Exhibit 1). Sanofi was fighting a looming drop in its revenues due to the patent expirations of several of its blockbuster drugs. The Genzyme acquisition would shift the focus of Sanofi's portfolio toward biopharma, an area in which the firm lagged behind its competitors.

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Keywords: M&A valuation, market potential, biotechnology, estimates, contingent value right