The WSJ published that Genzyme is proposing that contingent value rights (CVRs) might be used to break the stalemate in negotiations between itself and Sanofi. Genzyme has steadfastly rejected Sanofi's $69 per share offer as being piteously low and asked for more like $89 per share in recent weeks.
Sanofi has countered that Genzyme's published reasoning to justify that $89 per share price is decidedly optimistic. In particular, Genzyme's projected peak sales for its Campath MS treatment (if approved) of more than $3.5 B per annum is far ahead of its own estimate of peak value around $700 M per annum. Sanofi has asked for limited due diligence around this point and Genzyme has refused to play ball.
Genzyme thus introduced CVRs into the picture. A contingent value right (or CVR) gives shareholders an additional benefit once an acquired company hits a future benchmark. CVRs are typically used when buyers and sellers can't agree on a purchase price [sound familiar to anyone following this story?], and often kick in after an acquired company meets sales or regulatory targets. In Genzyme's case, the CVR would be largely tied to the performance of Campath due to the controversy described above -- and its dominant impact on valuation.
A CVR structure would allow Sanofi to pay a lower price for Genzyme now on the condition that it makes additional future payments if Campath hits certain sales targets or other criteria. Sanofi has indicated it would be open to a CVR. Still, Genzyme says the CVR won't break the impasse if Sanofi's offer remains at $69 a share. Genzyme has also been integrating the CVR in its discussions with third parties who may be interested in the company -- purportedly with companies including Pfizer Inc., Johnson & Johnson and Merck & Co. Inc..
Genzyme has discussed the prospect of selling the entire company or particular assets. Genzyme has also raised the possibility of selling a minority stake. By early December, the company hopes to have enough information on outside interest to decide whether to run a formal auction process. You can't say that Genzyme management aren't resourceful. The plot thickens.
Posted by Bruce Lehr November 22nd 2010.
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