Biotechnology company Genzyme Corp. said Monday it rejected Sanofi-Aventis SA's $18.5 billion buyout offer because it undervalues the company.
On Sunday, French drug developer Sanofi-Aventis offered $69 per share for Genzyme, which has been struggling in the aftermath of manufacturing problems for key drugs.
Genzyme shares traded above the offering price Monday, suggesting shareholders expect the bid to go higher.
In a letter to Sanofi-Aventis, Genzyme Chairman and CEO Henri A. Termeer said the board unanimously rejected the offer. He said the board is "not prepared to engage" in negotiations with an "unrealistic" starting price.
On Sunday, Sanofi-Aventis, based in Paris, made the buyout offer following months of rumors. The offer marked a 38 percent premium over Genzyme's closing price of $49.86 on July 1, just before speculation over a deal.
The deal comes as Genzyme tries to bounce back from manufacturing issues with key drugs Cerezyme and Fabrazyme for genetic conditions. In June 2009, the company shut down its Boston plant for about three months to clean up viral contamination that had been slowing production. Then in November, the Food and Drug Administration said it found tiny particles of trash in drugs made by Genzyme, including steel, rubber and fiber. The agency recommended that doctors closely inspect vials of four drugs made at the plant: Cerezyme, Fabrazyme, Myozyme and Thyrogen. The company has been restructuring its manufacturing operations since January.
Genzyme, based in Cambridge, Mass., said it responded to Sanofi-Aventis' previous offer on Aug. 11, saying the offer represented a "opportunistic takeover proposal" that doesn't recognize the progress the company has made.
Sanofi-Aventis CEO Chris Viehbacher insisted Monday that the price was fair and "represents a sizeable premium over the share price." He said in a conference call with analysts that the deal would create value for shareholders of both companies.
He said Monday's letter from Genzyme "is not surprising, and continues the approach of the stonewalling that we've seen up till now."
Genzyme is considered attractive because it has promising drugs for high cholesterol and other disorders in late development and it already sells some lucrative drugs for rare genetic disorders. Like other major drug developers, Sanofi has been buying smaller companies or rights to experimental drugs as it faces more generic competition for blockbuster drugs.
Oppenheimer analyst Dr. Brian Abrahams said that a better deal will likely be negotiated between the companies, despite Sanofi implying it would consider a hostile bid. He said the price could range between $72 and $74 per share, given historical biotech acquisition premiums and Genzyme's products.
