Sanofi ($SNY) is stepping up its fight for Medivation. To lure its target to the bargaining table, the French drugmaker hinted that it might sweeten its $9.3 billion bid, provided Medivation ($MDVN) execs sit down for deal talks.
Just in case that bait doesn’t work, Sanofi also issued a threat: If Medivation doesn’t engage, then Sanofi will try to take over its board--and top Medivation shareholders have signed on for the battle.
So far, Medivation has rebuffed Sanofi’s advances, saying its $52.50-per-share bid undervalues the company. In a letter to Medivation Thursday, Sanofi CEO Olivier Brandicourt countered that argument with some quick math: His offer is “almost a 100% premium” to Medivation’s stock price just three months ago, and 50% higher than it was before takeover rumors began.
Still, Brandicourt wrote, Sanofi is open to increasing its offer if Medivation, a., enters good-faith talks, and b., demonstrates that it’s worth more than the current bid.
If not, then, prepare for battle, Brandicourt wrote. Sanofi wants Medivation and it means to make a deal.
“If you are not prepared to engage with us, we have no choice but to go directly to your shareholders,” the letter states. “As you know, your shareholders have the ability to act at any time by written consent to remove and replace the Board. If the Medivation Board of Directors continues to refuse to engage with us,” then that’s just what Sanofi will try to do. And it says it has top Medivation shareholders on hand to guarantee some votes for a switch.
The written consent process is a method shareholders can use to force governance changes at a public company. It’s much less common than a proxy fight, and only about a third of public companies include the mechanism in their bylaws.
Unlike a proxy fight, written consent doesn’t require a shareholder meeting. It’s all done on paper. But according to legal experts, the process can be difficult to complete, because company bylaws often require a larger share of voters to approve a measure than needed in a traditional proxy fight.
In quoting Medivation’s recent share prices, Brandicourt is emphasizing an M&A problem that has pharma CEOs grumbling: Biotech share prices are way down, which should theoretically make acquisitions cheaper. But biotech executives and boards haven’t adjusted their expectations accordingly. They’re looking for buyout offers that still deliver the kind of returns they could have commanded early last year.
Then again, there’s the stock price, and there’s the payoff from the assets that come with a deal. Medivation has a valuable one, regardless of its stock price--Xtandi, the blockbuster prostate cancer drug. Potential new uses in early prostate cancer and breast cancer could expand its market significantly and boost sales further, analysts say. Sales by 2020 could be $5 billion or more, and even shared with marketing partner Astellas, that’s a hefty chunk of cash flow. Plus, Medivation has pipeline meds that could deliver sales down the road.
And then there’s supply and demand. Few acquisition targets offer that kind of current revenue stream, and Sanofi isn’t the only company that needs the money. AstraZeneca ($AZN) and Pfizer ($PFE) are reportedly making their own runs at Medivation, and Novartis ($NVS) is said to be weighing an offer as well.
“There aren't many quality assets like Medivation in oncology,” Bernstein analyst Tim Anderson said in a Thursday investor note. “With the deal likely to be accretive in anyone's hands, it is just a matter of price now.”
Sanofi looks ready for a scrap, whether with other bidders or with Medivation’s leadership, or both. It’s running a risk by threatening a move against Medivation’s board; its target might decide to engage with Pfizer or AstraZeneca rather than Sanofi, if only for the sake of pride. Then again, a bigger offer is a bigger offer, and Medivation is going to have to talk to someone, soon.
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