| LONDON/PARIS, Sept 9
LONDON/PARIS, Sept 9 Chris Viehbacher's tilt at
Genzyme Corp GENZ.O, the maker of drugs for rare diseases, has
boosted Sanofi-Aventis SA's (SASY.PA) shares, sparked broker
upgrades and is backed by very cheap debt.
A stock rally since the Sanofi chief executive made his
approach public has added about 3.8 billion euros ($4.8 billion)
to Sanofi's value -- a sharp contrast to the billions wiped off
the market capitalisation of other acquisitive companies
recently, including BHP Billiton (BHP.AX) (BLT.L).
And it has also narrowed a big underperformance this year by
the French drugmaker compared with its peers -- a lag driven by
worries about how it will cope with a swathe of its biggest
drugs going off-patent.
Viehbacher made public a $69-a share, or $18.5 billion,
offer on Aug. 29, which Genzyme rejects as too low.
Since then, Sanofi shares have risen about 6.5 percent to
48.20 euros, outperforming a 4 percent rise in the DJ Stoxx
European healthcare index .SXDP. The stock is now little
changed from July 2, when sources first said Sanofi was looking
at several U.S. acquisitions.
Citigroup, Evolution Securities, and Societe Generale, one
of Sanofi's financiers, have all lifted their ratings since Aug.
And Starmine, which averages analyst recommendations on a
scale ranging from 1 ("strong buy") to 5 ("strong sell"), says
the 40-or-so Sanofi analysts it tracks now have an average
recommendation of 2.08 -- close to a "buy" -- up from 2.38 three
Claude Allary, a managing partner at consultant group
Bionest Partners in Paris, said the share reaction "reflects
some sort of recognition and approval that Sanofi has made a
carefully crafted move in getting Genzyme and that things are
moving ahead as planned."
LOAN AND BOND MARKETS
Underpinning the Sanofi move is access to super-cheap debt,
with benchmark interest rates at rock-bottom.
BHP Billiton, which has slightly lower credit ratings,
recently lined up $45 billion of loans to back its bid for
PotashCorp (POT.TO), with $25 billion in one-year loans that pay
less than 1 percent: a 70 basis point spread above U.S. dollar
Libor, currently below 0.3 percent USD3MFSR=. [ID:nLDE67J145]
Sanofi Chief Financial Officer Jerome Contamine told
investors on Aug. 30 its borrowing conditions compared "very
favourably" against other large takeover financings of the last
BNP Paribas, JPMorgan and SocGen have committed to finance a
deal. This would typically be done with a mixture of shorter and
longer-term loans, with perhaps half in one-year "bridge loans"
intended to be quickly refinanced in the bond markets.
Evolution analysts assume a 3.5 percent cost of debt, which
they say "looks conservative" -- Sanofi's 2016 euro bonds are
yielding just 2.475 percent FR042803774= -- but even this
would mean a 14 percent boost to 2013 earnings, assuming a
raised deal goes through at $75 a share.
The credit markets are not entirely carefree, but have
stopped a long way short of outright revolt, despite the
prospect of a deal that will more than treble Sanofi's debt
Standard & Poor's has warned it could cut its AA- credit
rating one notch, bringing it line with Moody's.
And the cost of insuring Sanofi's debt against default has
roughly doubled from its year-low in April, to about 84 basis
points, Markit data shows -- higher than that of rivals such as
Roche and Pfizer that have similar credit ratings.
For a Breakingviews column, "M&A buyers get little benefit
of the doubt", click [ID:nN26190902]
(Editing by David Cowell)