In an effort to bridge the gap, Sanofi and Genzyme have discussed the use of contingent value rights – a form of earn-out sometimes used in private pharmaceutical deals where future pay-outs are agreed based on a drug reaching certain milestones, generally in terms of regulatory approval or sales.
Insiders say establishing the value of CVR is a complex negotiation process that has yet to be settled. Estimating future cash flows for something as uncertain as a new drug is “crystal ball stuff” said one person familiar with the deal.
And the gulf between Sanofi’s current hostile offer at $69 a share and Genzyme remains substantial, meaning that the French company may well have to raise the baseline cash component of its bid.
Selling the deal to shareholders could also take a more generous offer. “I would like to see a price in the $80s, with a larger cash component,” said one Genzyme investor. “I am not that interested in a CVR as the numbers are too easy to manipulate.”
Indeed, companies are sometimes reluctant to offer CVRs because it can open them up to investor lawsuits down the road, say lawyers, related to whether the agreed milestones were adequately met.
With Genzyme shares still hovering above Sanofi’s offer, at about $72, it is likely that the French company will have to up its bid. However, the company has not yet had access to Genzyme’s books to begin due diligence on its quarry.
Saturday, January 15, 2011
FT.com / Health - Sanofi and Genzyme get closer but don’t touch