Sanofi investors grumble about Genzyme deal

Watch out, Sanofi-Aventis. Shareholders are getting a bit nervous now that you're negotiating a higher price for Genzyme ($GENZ). Or so reports Reuters, quoting investors named and unnamed. Sources close to the negotiations have been leaking numbers--such as the $71 cash plus $2 to $3 in a contingent value right we heard last week--stoking fears on the Sanofi ($SNY) side.

In a perfect illustration of the "you can't please everyone" adage, almost as soon as Sanofi started making progress with Genzyme--which had been scoffing at its initial $69-per-share offer--the company now has to contend with shareholders worried that it will overpay. The proposed CVR, which would let Sanofi pay more to Genzyme shareholders only if the proposed MS treatment Lemtrada pans out, spurred negotiations forward, but now, investors fear they'll lose too much upside.

"It is illogical when you are a company with very strong cash flow and potential that you dump all that philosophy and you go off and you buy a dream," John Arnold of AGF International Advisors told Reuters. "You have to have faith that over 3-5 years, somehow like magic, Sanofi can get the return on capital from a standing a start...we just cannot see that."

One of Reuters' sources pegged $75 as a "value-neutral" number. But another, fund manager Lionel Melka, figures that $74 to $75 in cash, plus a CVR of $5 to $6, would be acceptable to Genzyme. And there's the rub; if Genzyme wants too much, will Sanofi pay it anyway? As one investor posited, why not buy back shares with the cash that's burning a hole in CEO Christopher Viehbacher's pocket?

Apparently, Viehbacher has the faith that Arnold mentioned--that Genzyme will deliver over the long run. He's said he'll be smart about price. Sanofi's top investors might complain about the negotiations just to dampen Genzyme's expectations. Given the grumbling on both sides, however, it's certain that Viehbacher will come in for criticism whatever he does.

- see the Reuters story