Summary 657Genzyme’s own assessment of its intrinsic value was in sharp conflict with Sanofi’s
view. Earnings were recovering, production problems were being fixed, new blockbuster
drugs were in the pipeline, and longer term cash flows would support an increasing mar-
ket valuation for the company. Not surprisingly, the two sides were far apart in their val-
uations during private discussions during 2010. For months, little in these conversations
was moving them closer together. Having acquired two seats on Genzyme’s board, activist
investor Carl Icahn began pushing for a sale at a favorable price. But Sanofi’s September
cash offer of $69 per share (valuing the company at $17.5 billion) was soundly rebuffed
by Genzyme’s management. In October, Sanofi launched a hostile tender offer directly
to Genzyme’s shareholders, also at $69 per share.
The public offer triggered withering attacks (reported in the press) by both sides.
According to Genzyme’s CEO Termeer, during a September meeting, Viehbacher had
revealed that Sanofi might be willing to pay between $69 and $80 per share. Viehbacher
strongly denied any suggestion of this higher price range. He chastised Termeer for
refusing to share any company financial information that might narrow the gap between
the sides’ conflicting value assessments, and accused the Genzyme side of refusing to
bargain altogether.
The close of 2010 saw Genzyme presenting investors with exuberant next-year earn-
ings projections, and Sanofi retorting that these forecasts, far higher than analyst esti-
mates, were “pie in the sky.” The key points of disagreement between the sides were: (1)
the speed in which sales of two key Genzyme drugs would recover once ongoing pro-
duction problems had been overcome, and (2) the revenue prospects of Lemtrada,
Genzyme’s multiple sclerosis drug awaiting Food and Drug Administration (FDA)
approval. In 2011, the key breakthrough in the negotiations centered on these twin
points. After much work, the final terms of the deal set a $74 base price (worth $20.1 bil-
lion) plus a “contingent value right” that would sweeten the price if specific revenue
goals were met in the near future. These included reaching specific benchmark for sales
of the two aforementioned drugs, FDA approval of Lemtrada and its reaching a series of
its own benchmarks. (The Lemtrada benchmarks represented a key contingency, since
Genzyme estimated $3.5 billion in peak sales for the drug, while Sanofi expected $1 billion
or less.) In the end, this contingent pricing plan—which could add as much as $14 per
share to the sale price if all benchmarks were met—was the key to unlocking a mutually
beneficial deal.SUMMARY
Decision-Making Principles
- The impetus for all negotiations is mutual gain—to forge an agreement
that is better for both sides than a disagreement. This is true whether the
sides are attempting to form a new agreement or to resolve a long-
standing dispute.
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