BOSTON/PHILADELPHIA It took the rarefied air of the Swiss Alps to bring together the chief executives of Sanofi-Aventis (SASY.PA) and Genzyme Corp GENZ.O and pave the way for a $20.1 billion deal.
Genzyme Chief Executive Henri Termeer resisted Sanofi's initial offer of $18.5 billion, or $69 a share for months. Advisers to the two companies spent countless hours discussing options for a deal. Termeer bumped into Sanofi CEO Chris Viehbacher at various industry events, but the two did not sit down by themselves.
Then, at the end of January, both attended the World Economic Forum, an elite gathering of chief executives, heads of state, central bankers, finance ministers and other influential figures. It was held in the scenic ski resort of Davos, Switzerland. The atmosphere lent itself to discussion.
"Henri and Chris had two or three meetings in Davos," said one person close to the discussions. "They were very casual meetings, just the two of them, but that was enough for them to get over a hurdle and that led to them opening their books."
Walking down a hill together, Viehbacher outlined his vision for combining French drugmaker Sanofi with U.S. biotech Genzyme.
At that point, "the discussions turned from being a takeover battle and hostile all-about-the-price discussion to a talk about vision and outlook and philosophy," said another person familiar with the discussions. "That led Henri to feel more comfortable with the process, and with Chris, and talks began in earnest after that."
About three weeks later, the two companies announced their deal.
It took months for Termeer to accept the idea of selling a company he had built up over nearly 30 years. Viehbacher initially approached him in May 2010, when Termeer was fighting on multiple fronts. A manufacturing crisis in early 2009 led to shortages of two of Genzyme's most important drugs, sparking outrage among investors, patients and regulators.
By May 2010, the company's shares had fallen roughly 46 percent from a high of nearly $84 in July 2008. Shareholders were angry at what they felt was Genzyme's repeated failure to deliver on its promises or its earnings forecasts.
That resentment opened the door for activists Ralph Whitworth of Relational Investors LLC and Carl Icahn.
Termeer agreed to appoint Whitworth to the board and, to avoid a proxy battle, accepted two Icahn representatives as well. While the board was unanimous in rejecting Sanofi's original offer, some directors were more open in principle to a sale than others. That worked to Sanofi's advantage.
"There was the perception of wavering within the Genzyme board," said one source familiar with the discussions. "There were different personalities and factions on the board that had different motivations."
THE HOSTILE DEAL THAT WASN'T
In October, Sanofi took its offer directly to shareholders in a hostile bid.
Even so, to some people involved in the discussions, the talks were often marked more by tedium than by antagonism as Sanofi meticulously went through each item. In public, for the most part, Viehbacher and Termeer were civilized.
"It was one of the least hostile hostile takeovers I've ever seen," said one Genzyme investor. "They were very careful in all their meetings and presentations to not say bad things about each other."
In an interview with Reuters early in the takeover battle, Termeer said he didn't expect a truly hostile process to unfold and gave a "high probability" of a deal being consummated if Sanofi would raise the price.
"We need each other too much in terms of future value," he said at the time.
Although the two companies had vastly different views about the value of Genzyme and the potential success of its experimental drug for multiple sclerosis, only one bout of acrimony surfaced throughout the nine-month process.
In a filing with the U.S. Securities and Exchange Commission in October, Genzyme said Viehbacher suggested discussing a deal price range of $69 to $80 per share during a meeting with Termeer and a few advisers.
Sanofi took pains to deny Genzyme's characterization of what was said in that meeting, which was held in September.
The French company held another tacit threat against Genzyme, repeatedly referring to its option to launch a proxy fight. Sanofi even went so far as to vet a potential slate of alternative directors that could seek election to Genzyme's board.
Had that happened, activist investors on Genzyme's board would almost certainly have put up a slate of their own in a bid to block Sanofi from taking control.
But what finally brought Termeer to the table?
In October, immediately after Sanofi went hostile, Genzyme said it would reach out to other companies to gauge its value in the marketplace. But those forays didn't produce a potential white knight suitor.
"After that people felt the thing had a different dynamic," said the Genzyme investor. "It seemed to be the point at which Henri realized he would have to give up his baby."
A source familiar with the situation also said Termeer became more amenable to discussions with Sanofi following "rumblings of discontentment" within factions of Genzyme's board.
By early January, the two sides were engaged in direct talks about ways to bridge the gap in their estimates of Genzyme's value. And shortly after the private chat in Davos, Genzyme agreed to open its books to Sanofi to finalize a deal.
(Reporting by Toni Clarke and Jessica Hall; Editing by Michele Gershberg and Steve Orlofsky)