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Mergers & Acquisitions What Sanofi Needs to Win Genzyme October 4, 2010, 2:30 pmSanofi-Aventis's hostile bid for Genzyme could be the start of a long fight between the French drug maker and its biotechnology target.
Sanofi began its tender offer on Monday in an effort that is no doubt meant to show its commitment to acquiring Genzyme. The offer itself is rather plain vanilla, although it should be noted that the conditions to the offer are not as broad as they could be. There is no due diligence condition that would require that Genzyme to provide access to its nonpublic information before Sanofi will agree to a deal. There is also no financing condition. Sanofi has entered into $15 billion in financing commitments with JPMorgan Chase, Société Générale Corporate and Investment Banking and BNP Paribas.
In truth, though, the conditions are of little relevance. No deal can effectively be reached without the approval of the Genzyme board.
About The Deal ProfessorSteven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the legal aspects of mergers, private equity and corporate governance. A former corporate lawyer at Shearman & Sterling, he is a professor at the University of Connecticut School of Law. He is the author of “Gods at War: Shotgun Takeovers, Government by Deal and the Private Equity Implosion,” which explores modern-day deals and deal-making.
Genzyme does not have a poison pill (it expired on March 28, 2009), but its directors can adopt one at any time to prevent Sanofi from closing its tender offer.
More importantly, Genzyme is a Massachusetts corporation and there is also the Massachusetts business combination statute. In general, this law provides that any shareholder acquiring more than 5 percent of a Massachusetts company cannot squeeze out the remaining shareholders in a merger for a period of three years.
A shareholder can avoid this prohibition if, upon consummation of a transaction that resulted in such a shareholder exceeding the 5 percent threshold, that shareholder owned at least 90 percent of the corporation's stock. In other words, only if Sanofi acquires more than 90 percent of Genzyme in the tender offer can it completely acquire Genzyme without waiting three years. Another way to avoid this restriction is for Genzyme board to approve the transaction for these purposes and exempt Sanofi.
The bottom line is that Sanofi is going to need Genzyme board approval. It is going to be hard-pressed to reach the 90 percent level, and even if it does, Genzyme can adopt a poison pill.
Sanofi can obviously obtain board approval by making a higher bid. Genzyme’s chief executive, Henri Termeer, has already hinted that the company would be for sale at the right price.
Sanofi can alternatively run a proxy contest and replace Genyzyme's directors with people more favorably disposed to consider Sanofi's bid.
Genzyme does not have a staggered board, so all of the Genzyme directors would be up for election at the next annual meeting. Under Genzyme's certificate of incorporation, 40 percent of Genzyme's shareholders can call a special meeting to remove the directors. However, directors can only be removed for cause under Massachusetts law, which means that even though a meeting to remove them can be called before the next annual meeting, the directors cannot be removed.
Sanofi will thus have to wait until Genzyme's next annual meeting to attempt to replace Genzyme's directors.
The last annual meeting of Genzyme was held on June 16. The date for the next meeting has yet to be set by Genzyme, through according to the last proxy statement, notice of directors cannot be earlier than Feb. 16, 2011, and no later than March 18, 2011. This assumes that the meeting is held around the same time as it was this year.
The Genzyme directors can try and move back the meeting. Massachusetts law does not specify the timing of the holding of the annual meeting and provides this discretion to the board. The company's bylaws freely give the board this power. But Massachusetts law also allows a shareholder action to require the annual meeting to be held if the meeting is "not held within the earlier of six months after the end of the corporation’s fiscal year or 15 months after its last annual meeting." The directors can likely litigate this requirement, but this means that any meeting could probably not be delayed past summer 2011. This is 10 to 12 months away.
Unless Sanofi is able to table a compelling offer, this could be a long contest. But then again Sanofi knows all of this, so if it is truly serious, it will act much sooner to raise its bid. Given the composition of the board, with two directors appointed by the activist billionaire investor Carl C. Icahn, Sanofi may have friends on the inside predisposed to any increase in its bid.
In other words, this contest will likely have less of the legal gamesmanship of other contests, given the lack of the pressure of a proxy contest. Instead, this will unfold internally perhaps in division of Genzyme's board.
To exploit this conflict, Sanofi will have to table a compelling offer, something it has yet to do, or otherwise wait.
– Steven M. Davidoff
Go to Tender Offer for Genzyme from Sanofi-Aventis » Go to the Deal Professor from DealBook »
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