Coverage: Sanofi makes $9.3 billion bid for Medivation

Paris drugmaker Sanofi SA launched an unsolicited $9.3 billion bid for U.S. cancer firm Medivation, launching what could be a lengthy takeover fight.

Nick Kostov and Noemie Bisserbe of The Wall Street Journal had the day’s news:

 Sanofi SA on Thursday said it has made an unsolicited offer to acquire Medivation Inc. in a deal valued at $9.3 billion, the French drugmaker’s latest effort to expand its cancer-treatment business.

Sanofi said it decided to go public with its offer after the U.S. company rebuffed its recent takeover approach.

In a letter dated April 28, Sanofi’s CEO Olivier Brandicourt said he first discussed a possible takeover in a phone call with the San Francisco-based firm’s CEO David Hung on March 25 and in a subsequent conversation on April 3.

Medivation expressed “no interest in discussing a transaction,” said Sanofi.

“Given your unwillingness to meet or to hear our proposal, we sent you a letter on Friday, April 15, setting forth a proposal to acquire Medivation,” Mr. Brandicourt wrote.

“We do not understand the delay in responding to our letter,” he added.

Mr. Brandicourt said the $52.50 a share offer—a 50% premium to Medivation’s average share price for the two months before takeover speculation emerged—was “very attractive.”

The Paris-based drugmaker said its nonbinding, all-cash offer wouldn’t be contingent on any financing conditions.

Ben Hirschler and Leigh Thomas of Reuters explained why Sanofi would even want to buy Medivation:

The French company, whose shares slipped 2 percent in a sharply weaker European market by mid-morning, said there was no certainty the deal would get done, but that if it did, it would boost earnings immediately.

Deutsche Bank analysts said Sanofi likely had “significant flexibility” to raise its offer, given the current low cost of debt, while Bernstein calculated the deal would still lift earnings from 2017 even at $62.40 a share, or 20 percent above Wednesday’s close.

The premium to the unaffected price offered by Sanofi is below some other recent large biotech deals, with Roche paying a 63 percent premium for Intermune in 2014 and Alexion 140 percent for Synageva last year.

Stepping up acquisitions fits with the strategy of Sanofi Chief Executive Olivier Brandicourt, who took over a year ago. He told Reuters in January that he was looking for deals to broaden its reach in areas such as oncology and could consider deals of up to $20 billion.

France’s biggest drugmaker is going through a tough patch, due to falling sales of Lantus, prompting it to warn of no meaningful profit growth over the next two years.

Oncology is currently the hottest area of pharmaceutical research, thanks to advances in understanding the biological drivers of the disease. Sanofi has a long history in selling chemotherapy drugs but has been less successful at developing modern cancer medicines.

The Financial Times included a letter from Sanofi CEO to Medivation CEO David Hung:

Here are a few extracts of today’s letter to Mr Hung, who is Medivation’s president as well as chief executive from Olivier Brandicourt, head of Sanofi:

Dear David,

It has been over a month since we first talked and I expressed my view that a combination would make strong strategic sense, and I said we were prepared to make a very attractive proposal. During our first call on March 25, you said that you were unwilling to meet, and in our subsequent conversation on April 3 you said that, after a review with your Board, there was no interest in discussing a transaction. Given your unwillingness to meet or to hear our proposal, we sent you a letter on Friday, April 15, setting forth a proposal (the “Proposal”) to acquire Medivation for $52.50 per share in cash, representing a premium of over 50% to the two-month volume weighted average trading price (VWAP) prior to there being takeover rumors. We have not heard anything from you for almost two weeks, other than an acknowledgment of receipt of our letter.

We do not understand the delay in responding to our letter. The price we put forth represents a very substantial premium, and it would be all cash without any financing condition. In these circumstances we believe it is appropriate to make this letter public, which we are doing today.

The letter continues:

We are excited by the prospect of accelerating Medivation’s growth by leveraging Sanofi’s infrastructure and capabilities. We are convinced that Medivation’s employees would find a very attractive environment within our Sanofi Genzyme specialty business unit and our R&D organization, giving them the opportunity to fully develop their skills and help bring new treatments to patients on a worldwide basis. We also strongly believe that Medivation shareholders would find our Proposal to be compelling.

Working with our advisors, our team has reviewed your business based on publicly available information and our knowledge of the markets in which you compete to validate our views on value. Given the amount of work we have done to date, we are well-positioned to swiftly consummate a transaction that will be in the best interests of, and provide immediate and certain value for, your stockholders.

Our Proposal is subject to satisfactory completion of confirmatory due diligence, negotiation and execution of a mutually acceptable definitive written agreements, and approval of Sanofi’s Board of Directors.

We are prepared to meet promptly so we can mutually work towards a transaction that benefits our respective stockholders.

It emerged in March that Medivation had hired bankers to defend itself against a potential takeover bid after receiving approaches from a number of possible suitors.