CNBC is reporting that sanofi-aventis will send a “bear hug” letter to U.S. biotech group Genzyme within the next 72 hours. A so-called bear hug letter is a takeover offer for a higher per-share price than the company is worth.
The unsolicited bid is rumored to be in the neighbourhood of $70 a share, which would work out to an offer of US$18.6 billion. However, questions are being raised about the potential deal due to recent problems relating to Genzyme’s manufacturing process.
In June 2009 Genzyme was forced to shut down production at its Boston facility due to viral contamination of its products, and again in November when drugs were found to contain small pieces of steel, rubber and fiber. The FDA took on a supervisory role at the facility after it lost confidence in the company’s ability to run its factories independently.
According to CNBC, Genzyme’s problems have not only resulted in a loss of market share, but have exposed the company to a new danger—that doctors will find a smaller dosage of the drugs as effective as the usual dose, which will lower revenues.
Sanofi approached Genzyme early in 2010 regarding a merger that would boost its drug pipeline and give it a substantial presence in the lucrative biopharmaceutical market. And while the “bear hug” is a friendly offer, such a proposal also carries the possibility of hostile action.
