BOSTON In what must count as the longest game of chicken ever, biotechnology company Genzyme Corp GENZ.O and French drugmaker Sanofi-Aventis SA (SASY.PA), which is seeking to acquire it, are still haggling over price.
The two companies had agreed on a broad outline that would give Genzyme investors about $74 in cash, or $19.2 billion, and a right to future payments based on the performance of one of Genzyme's experimental drugs. The price was contingent on Sanofi being satisfied with its review of Genzyme's books and manufacturing operations.
Now, Sanofi is seeking to shave an undisclosed amount off its latest offer after spending two weeks studying Genzyme's operations, according to one source familiar with the situation. The two sides are still talking, however, and another source said they aim to complete a deal as early as this week.
"We think that Sanofi was granted access to the books with a $73-$74 or maybe $73-$75 (per share) range, said Lionel Melka, co-manager of Bernheim, Dreyfus & Co's Diva Synergy Fund, an investor in Genzyme. "Sanofi is probably arguing that it discovered that manufacturing/contamination issues were worse than it thought and is trying to pay $73."
Some investors have grown concerned a deal might fall through. Genzyme's shares have fallen 4.2 percent from a year high of $74.95 on February 1 to close at $71.77 on Monday.
As the negotiations move into their final phase, the question arises: is either company willing to let the deal collapse for the sake of $1 or $2 a share?
If the talks dissolve, Genzyme's shares would plunge and activist investor Carl Icahn would almost certainly move to remove the company's top management and shake up its board. Genzyme Chief Executive Henri Termeer is set to retire this year, and has his legacy to consider.
"Termeer can either sell the company and go out as a hero," said one investor who recently sold his shares in Genzyme for just over $73 each, "or he can go out as a goat."
Sanofi Chief Executive Chris Viehbacher also has his reputation to protect. He has spent nine months pursuing Cambridge, Massachusetts-based Genzyme, and Sanofi needs new products to make up for drugs that are losing patent protection.
"Genzyme knows that Sanofi critically needs to get this deal done," said Bernheim, Dreyfus & Co's Melka. "Frankly, after all this, I don't see Sanofi walking away for one dollar."
Gary Pisano, a Harvard Business School professor and biotechnology industry expert, said that in general, pharmaceuticals companies get what they pay for.
"Unless you think you're buying the asset really cheap, you're not really creating value," he said. "If Sanofi feels that Genzyme's assets are underexploited, if it means they can get a foothold in the Boston market for research and development -- and many companies have spent a lot of money to do that -- then Sanofi would be crazy to mess around for a buck or two."
Sanofi's original offer for Genzyme of $69 a share did indeed appear to be a bid to acquire Genzyme on the cheap. A manufacturing crisis had caused the company's shares to fall more than 45 percent from a high of nearly $84 in 2008.
Genzyme maintains that it is on the road to recovery.
It has mostly restored supplies of two drugs after the manufacturing crisis lead to a shortage, and it is building new manufacturing facilities in Framingham, Massachusetts, and in Belgium. Until then, supplies of its drugs remain tight, and any new glitch could cause shortages again.
Sanofi has a tender offer out to shareholders for $69 per share, and is expected to extend that after it expires late on Tuesday.
(Additional reporting by Jessica Hall in Philadelphia and Sinead Cruise in London; Editing by Michele Gershberg and Richard Chang)