Genzyme opens books to Sanofi in takeover talks

NEW YORK/BOSTON (Reuters) - U.S. biotechnology company GENZYME (GENZ.NQ)Corp agreed to open its books to French drugmaker Sanofi-Aventis SA, a sign that the two sides may be close to a merger.

The companies, which have been discussing ways to value Genzyme for several weeks, said on Monday they had entered a nondisclosure agreement, allowing Genzyme to share certain nonpublic information with Sanofi.

Genzyme previously rejected Sanofi's hostile takeover offer of $18.5 billion, or $69 a share. The companies have since been discussing ways to reach a mutually agreeable price.

The companies have spent a good deal of time discussing the possibility of including a contingent value right (CVR) in the deal. This would give Genzyme shareholders an additional benefit if the company's experimental multiple sclerosis drug Lemtrada reaches certain regulatory and sales milestones.

Genzyme has forecast peak annual sales of $3.5 billion for Lemtrada; Sanofi, using the average of several analyst estimates, expects only about $700 million.

In a statement, Genzyme said the companies are also discussing alternative deal structures. "The parties have also discussed other potential terms for a negotiated transaction," it said.

Navid Malik, industry analyst at Matrix Corporate Capital in London, said the confidentiality agreement showed the companies were getting closer to a deal.

"This is a good sign and it means they can get to the bottom of the sticking-point issues around what some of the pipeline assets are worth," Malik said.

Genzyme shares rose 1.5 percent to $72.15 in premarket trading on Monday. They have consistently traded above the Sanofi offer price. Sanofi shares rose 0.6 percent.

"This is a critical step that will allow Sanofi to conduct official diligence," ISI Group analyst Mark Schoenebaum said of the confidentiality pact.

One source previously told Reuters that due diligence this late in the game was likely to be "confirmatory" and that an agreement would likely be reached within a matter of weeks.

On Monday, some analysts agreed.

"If Genzyme is opening its books to Sanofi, it means that there is an agreement on price, or at least a very narrow range subject to adjustment following due diligence findings," said Lionel Melka, co-manager of Bernheim, Dreyfus & Co's Diva Synergy Fund, which owns Genzyme shares.

Melka estimates Sanofi will need two weeks to complete the due diligence, and he is betting the transaction will be completed at $75 a share in cash plus a $5 CVR.

Sanofi Chief Executive Chris Viehbacher and Genzyme CEO Henri Termeer told Reuters last week during the annual meeting of the World Economic Forum in Davos, Switzerland, that they had made progress in takeover discussions.

Termeer said a proxy battle for control of the U.S. biotech company was unlikely since the two sides were "constructively engaged.

Despite the discussions, Sanofi has hired a search firm to look for potential candidates to nominate to Genzyme's board of directors, sources familiar with the situation have told Reuters.

Schoenebaum said he thinks a deal will be struck in the next few months for a cash consideration of around $74 per Genzyme share plus a CVR of perhaps $5 to $10 per share.

Genzyme said it its statement that it "can provide no assurance that discussions with Sanofi will result in a transaction that will be determined by its board to be in the best interests of the company and its shareholders."

(Additional reporting by Ben Hirschler and Sinead Cruise Editing by Gerald E. McCormick and John Wallace)

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