Genzyme rejects Sanofi offer, long battle looms

PARIS/BOSTON (Reuters) - U.S. biotech company GENZYME (GENZ.NQ)Inc rejected an $18.5 billion buyout offer from French drugmaker Sanofi-Aventis SA on Monday, setting the stage for a protracted and potentially hostile takeover battle.

Genzyme Chief Executive Henri Termeer told Sanofi CEO Chris Viehbacher in a letter that 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 Sanofi staffers for his cost-cutting zeal, hit back on a conference call with investors and analysts. He said he was in no hurry and did not expect the process to conclude quickly, but hinted that Sanofi could take a hostile offer directly to Genzyme shareholders.

Viehbacher's patience may be limited and Sanofi could make a hostile offer within a few weeks, a source familiar with the situation said. The source was not authorized to speak with the media.

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

Genzyme, which is still trying to sell three noncore businesses, has reached out to potential "white knight" bidders, a second source familiar with the situation said. But it has yet to see an alternate suitor emerge.

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

Viehbacher said the transaction 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."

Genzyme shares rose 3.8 percent to $70.16 in afternoon trading on Nasdaq. Sanofi shares closed up 0.7 percent at 45.56 euros, in line with the Stoxx 600 European health care index.

OPPORTUNISTIC OFFER?

After more than a month of unconfirmed, low-level contacts between the sides, Sanofi went public with its $69 per share non-binding cash offer for Genzyme on Sunday.

Viehbacher circulated a letter sent August 29 to Termeer after several failed attempts to start talks and said Genzyme was stonewalling.

Sources previously told Reuters that Genzyme wanted an offer of at least $75 per share before Sanofi could review its books, while some shareholders want up to $80 a share in a deal.

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

In his response on Monday, Termeer said: "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."

He added that Sanofi's offer does not take into account promising drugs in Genzyme's pipeline or its efforts to fix manufacturing problems that have hit profits and the company's share value.

Genzyme said its board unanimously rejected Sanofi's offer. It pointed out that 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.

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.

Some analysts have suggested that Genzyme might not get a better offer and that a hostile bid by Sanofi could even be lower than the current proposal.

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 overture, 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. He sees Genzyme shares dropping below $60 without the deal.

($1=.7861 Euro)

(Additional reporting by Ben Hirschler in Stockholm and Jessica Hall in Philadelphia. Writing by James Regan; Editing by Michael Shields, Erica Billingham and Gerald E. McCormick)

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