What will Sanofi ($SNY) do with its cash? That's the question now that L'Oréal seems happy to remain the French drugmaker's largest shareholder. Absent the need to hoard cash to buy back L'Oréal shares, at least for now, Sanofi can use that money for something else.
Buying back L'Oréal's 9% stake in the company would boost Sanofi's EPS by 6% to 8%, Deutsche Bank's Mark Clark told Reuters. That's why Sanofi shares dropped by 2% on L'Oréal's news. "It doesn't rule anything out in the future, but people will conclude it reduces the chance of Sanofi buying back that 9% stake in due course," Clark said.
So, investors will be looking to Sanofi for answers. Berenberg analyst Alistair Campbell told the news service that the pressure is on for the company to state its intentions for that cash.
"I think Sanofi would preferably like to invest in bolt-on acquisitions to strengthen the business--they've always been clear on that front--but I also think you could well see them at some stage commit to a share buyback of their own," Campbell said.
Or set up more biotech partnerships, perhaps? Hike its stake in Regeneron ($REGN), its U.S. partner on Zaltrap and other drugs, including a promising cholesterol med? Both?
As Reuters notes, Viehbacher said several months ago that Sanofi could pump up its share of Regeneron to as much as 30% from about 16% now. And Regeneron is churning out sales, primarily of its eye drug Eylea, which brought in more than $600 million in the fourth quarter. Citi analyst Peter Verdult figures that raising its stake in Regeneron beyond 20% would cost some €1 billion ($1.66 billion) but would add 3% to earnings beginning next year.
This isn't the only pressure Sanofi is getting from investors. After announcing its 2013 results last week, analysts went after the company's "timid" 2014 forecast, and shares slumped. Berenberg, for one, called the lack of a double-digit growth forecast "disappointing" but allowed that Sanofi could be guiding conservatively.
- read the Reuters news
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