PHILADELPHIA France's Sanofi-Aventis (SASY.PA) plans to make a formal offer of up to $18.7 billion for Genzyme GENZ.O after its informal overture failed to strike interest, sources familiar with the situation said on Wednesday.
The board of Sanofi met in Paris on Wednesday and authorized management to make a formal offer of up to $70 per share for Genzyme, sources said.
Sanofi has bank commitments of funding that would allow it to raise that bid if needed, one source said. A second source cautioned that no formal proposal had been made yet and plans could still change.
Genzyme has a market capitalization of about $18 billion. At $70 per share, Sanofi would be offering a premium of roughly 30 percent over what the price of Genzyme's stock was before news of takeover interest emerged.
The Wall Street Journal, citing people close to Genzyme, suggested that about $75 a share could be sufficient to win the support of Genzyme's board.
Sanofi, which is scheduled to report second-quarter earnings on Thursday, declined to comment. Genzyme could not be immediately reached for comment.
Shares of Genzyme gained 5 percent to $71.20 in extended trading on Wednesday after news of the board meeting.
Analysts see Sanofi in greater need of a major acquisition than some of its rivals as it braces for generic competition for some of its key products.
Last week, Sanofi lowered its view for 2010 earnings per share after U.S. regulators approved a generic form of the Lovenox blood thinner, its No. 2 product last year.
Genzyme's biggest-selling drug is Cerezyme, a treatment for Gaucher disease, a rare genetic disorder. Promising drugs in late stage development include a treatment for multiple sclerosis.
Orphan drugs -- those that treat small numbers of patients but command high prices -- are much less amenable to generic competition than pills and are therefore attractive acquisition candidates.
BEAR HUG LETTER EXPECTED
Sanofi's proposal was expected to come in the form of a publicly disclosed "bear hug" letter that would lay out proposed takeover terms and try to pressure Genzyme to open negotiations, the first source said.
Genzyme failed to respond to Sanofi's informal overture, sources previously told Reuters. Genzyme, which is trying to sell three non-core businesses, is not looking to sell the company, sources previously said.
Reports that Sanofi was making a run at Genzyme surfaced on Friday. The news has sent the U.S. company's shares up about 30 percent since then as investors figured the company would garner a hefty premium for its portfolio of expensive treatments for rare genetic disorders and a pipeline of drugs in development.
Analysts see Genzyme fetching anywhere from $60 to $85 a share, depending on their view of the value of the company's experimental drugs, the risks associated with its recovery from a manufacturing crisis and the entry of other bidders.
Some company watchers, however, focus on a narrower price range and say Genzyme shareholders may be willing to accept a price of $70 to $80 per share, particularly newer investors who were drawn to the company when it was targeted by activist investor Carl Icahn.
Sanofi's approach comes on the heels of a turbulent two years for Genzyme and its chief executive, Henri Termeer, who is expected to step down within the next year or two.
Earlier this year, Termeer fought off a threatened proxy fight by reaching settlements with investors Carl Icahn, who now has two representatives on the company's board, and Ralph Whitworth of Relational Investors LLC, who also sits on the board.
The Wall Street Journal said Britain's Glaxo (GSK.L) had also recently made "a very casual approach" to Genzyme, but industry insiders and analysts said that Glaxo Chief Executive Andrew Witty, with a reputation for caution on M&A, was unlikely to chase Genzyme.
(Reporting by Jessica Hall; Editing by Gary Hill, Phil Berlowitz, Gary Hill)