Talks about a takeover of Genzyme continued on Monday despite expectations that the two sides would hammer out a reconciliation at the weekend, following a testy courtship. A final deal could be announced within days, the sources said.
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Shares in Sanofi rose, indicating investors remained confident the second-largest takeover deal in the history of the biotech sector would go ahead.
"We should not over-interpret what's happening," said Justin Smith, analyst at UK brokerage MF Global. "In the end this is a complicated negotiation; it's a large transaction and they should take their time and be thoughtful about it."
Sanofi shares slightly outperformed a firmer market and by mid-session were up 1.1% at 50.84 euros.
In New York, Genzyme shares traded at $74.70 in pre-market dealings after closing at $73.40 on Friday.
Buying Genzyme would add rare diseases as a new growth area for Sanofi, which under Chief Executive Chris Viehbacher has been diversifying to reduce exposure to cheaper generic drugs. Until recently Cambridge, Massachusetts-based Genzyme -- founded in 1981 and one of the first entrants into the young biotechnology sector, which develops drugs from living cells -- had been unwilling to enter negotiations with Sanofi, which responded by launching a hostile $69-a-share bid in October.
Sources familiar with the situation said on Sunday Sanofi could raise its cash offer to roughly $74 per share or $19.2 billion based on 258.99 million shares outstanding and add a fee tied to the performance of a drug Genzyme is developing.
FORCED TO EXPAND
The fee, called a "contingent value right" or CVR, would have an effective value of $5 to $6 a share.
The CVR would be a tradable security that offers a payout to shareholders over time and in this case would be based on the performance of Lemtrada, designed to treat multiple sclerosis. If the drug fails, this option would be worth nothing.
Sanofi is due to report its annual results on Wednesday.
Buying Genzyme would be Viehbacher's biggest deal since he took office in December 2008 and Sanofi's biggest since it bought Aventis in 2004. That merger created a powerhouse with blockbuster drugs such as anti-clotting pill Plavix, the world's second best-selling prescribed medicine. But with drugs losing patent protection, Sanofi is being forced to expand.
"It is not illogical that they should be able to reach an agreement around the price levels which are being indicated," said Jean-Jacques Le Fur, analyst at Oddo Securities.
"I have always estimated the transaction would happen between $69 and $75 a share in cash. The CVR should be worth $6 to $8 a share. The operation could be announced the day of Sanofi's results."
Sanofi declined to comment.
Uppermost in Sanofi's mind as it carries out due diligence, according to analysts, will be past manufacturing problems at Genzyme that led to shortages of two of its life-saving drugs.
The U.S. company was founded by Henry Blair, an enzymologist who had been collaborating with the National Institutes of Health to develop a treatment for Gaucher disease.
Genzyme's current CEO Termeer, a Dutchman, joined the fledgling company in 1983 after 10 years at healthcare company Baxter, known for producing successful young entrepreneurs.
This week's talks are the latest sign of a rebound in merger activity which promises to deliver bigger fees for investment bankers. January saw the biggest crop of proposed mergers since the start of 2000, with plans for $310 billion in transactions across the globe.