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January 13, 2011
Sanofi's Slow-Motion Takeover of Genzyme
Posted by Derek
You'll have noticed that we haven't been hearing a lot about Sanofi-Aventis trying to round up Genzyme shareholders as part of their takeover plan. That's because the two companies seem to have found a way to negotiate with each other, so it doesn't look like we're going to go into full proxy-fight mode. This Bloomberg article gives the impression that a number of issues have been worked out, and that there are just a few figures left to agree on. It's quite possible that Genzyme's executives and board weren't able to find anyone else who agreed with their public assessment of what their takeover price should be, realized that they were probably going to be stuck with this deal, and decided to make the best of it.
So how does that leave that big bet in the options market from last summer? Well, selling October 75 calls worked out just fine; GENZ never made it over that price, so whoever bought the things on the other side of those contracts ended up handing over all their money to the people who wrote them. But using the proceeds to set up a 65-55 put spread for this month, that doesn't look like it's going to work so well. Genzyme's price has hung in the low 70s the whole time, and doesn't look to make the below-65-but-not-below-55 range that those trades need. Oh, well - let that be a lesson to everyone to stay out of the options market unless you're hedging a position somewhere else. I hope that these folks were.
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1. Hap on January 13, 2011 10:39 AM writes...
I thought SA wasn't getting anyone to sell it Genzyme stock though - 1% as of December? - so if Genzyme really has faith in their ability to generate more value than the offer from SA gives them credit for, they could just sit tight, work out their consent decree, and wait for their products to come on line. (I thought they generated enough cash with their previous sales of businesses as well, so they shouldn't be cash-starved.) What is making Genzyme decide that they have to sell?
Permalink to Comment2. nonbeliver on January 13, 2011 11:09 AM writes...
"......realized that they were probably going to be stuck with this deal, and decided to make the best of it."
Seems that this presents a bias along with the Genzyme's over-inflated valuateion of themselves. If no one esle can be found to bid more, that no other suiter considers the potential reward involved in taking over to be worth a greater valuation when having to fix the many production and product problems, then perhaps that's the truth in the market place, not the overinflated self-image of Genzyme of itself...or no one bought their story of being worth more in an attempt to pad the pockets of Genzyme management, stockholders (as they'd exit knowingly, with a smirk).
If it looks like a duck, waddles like a duck, swims like a duck even tastes like a duck, maybe it's not a swan.
Permalink to Comment3. Hap on January 13, 2011 11:32 AM writes...
Oh, and betting on anything in the option market should be treated like working with electricity - don't play with it unless you know what you're doing.
Permalink to Comment4. Anonymous on January 13, 2011 7:41 PM writes...
Who's forcing Genzyme down the sale path? Carl Ichan, Ralph Whitworth, and a cast of a thousand arbitrageurs.
Permalink to Comment5. Steven on January 15, 2011 4:09 PM writes...
Most of the time, management has an inflated valuation of itself and doesn't work in the best interests of the true owners, i.e. the shareholders. Management needs to come out say why they believe that this offer fundamentally undervalues the company, when in reality it was a pretty nice premium to the share price at the time. Too often management frustrates the acquiring firm, thereby forcing them to abandon the takeover offer. This is then followed by a cratering of the share price. Who wins? Not the shareholders
And about options, you never know what someone's underlying position is in the stock, so be careful about just interpreting a large position
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