Genzyme Genetics Goes for $925M in Deal with LabCorp
BioWorld Today Assistant Managing Editor
Genzyme Corp. landed a better-than-expected deal for its genetic testing business, selling Genzyme Genetics to Laboratory Corp. of America for $925 million in cash and increasing the odds that Sanofi-Aventis SA could raise its acquisition bid.
The Cambridge, Mass.-based firm revealed earlier this year that it planned to divest its genetics testing unit – also its diagnostics and pharmaceutical intermediates units – in a restructuring move to boost shareholder value. But most analysts had expected the sale of all three businesses to total about $1 billion, with the genetics unit going for around $650 million, so terms of the LabCorp deal offered a nice surprise, particularly given that other firms have had trouble selling off noncore units. (See BioWorld Today, July 22, 2010.)
Most recently, Abbott, of Abbott Park, Ill., opted against selling a vaccine division – picked up in last year's acquisition of Solvay Pharmaceuticals Inc. – after failing to receive an attractive enough bid. (See BioWorld Today, Sept. 29, 2009.)
In what was believed to be a competitive bidding process, LabCorp's offer for Genzyme Genetics came in at roughly two and a half times the unit's 2009 revenue of $371 million. Assuming a similar multiple for the other two business units, "we would expect the sale of [those] segments to generate an additional $400 million to $600 million," said Piper Jaffray analyst Ian Somaiya.
Genzyme could not be reached for comment.
Divesting all three franchises should improve the company's gross and operating margins. The company said proceeds might be used to finance the last half of its $2 billion stock buyback program, aiming for completion in May 2011.
The firm also reported last week that it planned to reduce headcount by about 1,000 employees, roughly 10 percent of its global work force. While Genzyme has maintained that neither move is related to Sanofi's unsolicited takeover bid, they do support a "higher acquisition multiple," Somaiya wrote in a research note.
Late last month, Sanofi made its official $69-per-share offer, which Genzyme immediately rejected as too low. There remains the possibility that the Paris-based big pharma firm could go hostile, but most analysts, such as Eun K. Yang, of Jefferies, agree that a higher bid will be needed to close the deal.
"We continue to view the ultimate acquisition of GENZ as likely," Yang wrote in a research report, maintaining a price target of $80 per share.
After being plagued by bad news throughout the past year – contamination at its Allston Landing facility that resulted in shortfalls of enzyme replacement therapies Cerezyme (imiglucerase alfa) and Fabrazyme (agalsidase beta) followed by a costly consent decree and disappointing earnings – Genzyme has finally started getting back on track. Production of Cerezyme and Fabrazyme is nearly back up to capacity, the firm won approval of Lumizyme, the 4,000L version of Pompe disease drug Myozyme (aglucosidase alfa); its new manufacturing facility in Framingham, Mass., remains on schedule to open in 2011; and the firm managed to avoid a potentially ugly proxy battle with activist shareholder Carl Icahn. (See BioWorld Today, May 26, 2010, and Aug. 30, 2010.)
Under its agreement, Burlington, N.C.-based LabCorp will get Genzyme Genetics in its entirety, including testing services technology and all nine testing laboratories. LabCorp also plans to offer employment to the unit's 1,900 people, including senior management.
Genzyme Genetics provides reproductive and oncology testing and specializes in esoteric testing.
Shares of Genzyme (NASDAQ:GENZ) closed Monday at $70.29, down 50 cents.
Published: September 14, 2010
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