Sanofi purchase of Zentiva hailed

by Cheryl Meyer and Paul Whitfield
19 June 2008
Sanofi-Aventis SA’s move Wednesday, June 18, to buy Czech firm Zentiva NV for $1.93 billion
should help the company offset future financial losses caused by increasing generics
"They are trying to shore up future revenue generation," said Damien Conover, equity analyst at
Chicago’s Morningstar Inc., of Sanofi. "This is one area of growth because of its geographic
location, and it should be pretty steady business for them, and helps offset some of the volatility
they’ll be facing."
Sanofi, France’s largest drugmaker, bid about 30.032 billion Czech koruna for the three-
quarters stake it doesn’t already own of Czech generics group Zentiva, topping a rival offer by
Czech financial firm PPF Group NV. Sanofi will offer Kcs1,050 per share in cash, 11% higher
than a Kcs950 per share bid lodged May 1 by PPF. The offer values Zentiva at about $2.6
billion, almost 15% above its market value on April 30, the day before PPF made its offer.
The deal also values Zentiva at 1.8 times 2009 estimated sales and 18 times 2009 earnings per
share estimates, according to J.P. Morgan Securities Ltd. analyst Alexandra Hauber. "At 18
times our 2009 EPS forecast, this is an expensive deal," she wrote in a Wednesday report. Still,
she said, Zentiva, a maker of generic drugs to treat cardiovascular disease, pain and central
nervous system disorders, should add up to 5% to Sanofi’s sales. Zentiva employs about 6,500
The French bid pitches Zentiva’s two biggest shareholders against each other. Sanofi holds
24.9% of the group, a stake it bought two years ago. PPF and subsidiary Generali PPF Holding
BV together hold about 19.2%.
Sanofi made its move a day after Anthiarose Ltd., another subsidiary of PPF, published details
of its offer and said it could make a "more favorable" bid to win shareholder support. Zentiva,
which trades on the Prague stock exchange but has headquarters in Amsterdam, said Tuesday
it was considering PPF’s bid and would hold a shareholder meeting to discuss the offer.
The following day, Zentiva acknowledged Sanofi-Aventis’ announcement and said its board
would meet to review it.
"Once the full details of the intended competing offer are published, Zentiva’s board will issue its
fully considered response in due course," it said. "In the meantime, shareholders are advised
not to take any action in regards to the intended competing offer or the offer recently made by
Anthiarose Ltd."
A Zentiva spokeswoman said the company would likely comment later Wednesday on Sanofi’s
Sanofi’s move will help minimize losses on patents that are scheduled to expire within a few years. It will also give Sanofi a presence in Eastern Europe and Russia, where generics are popular due to their cheaper costs. Zentiva has operations in the Czech Republic, Slovakia, Russia, Romania, Poland and Turkey. Recently, Sanofi received word that a generic anti-clotting drug manufactured by Schweizerhall Holdings AG was approved in Germany, pitting the generic against Sanofi’s Plavix drug. Sources say the German approval likely means a generic in other European Union countries. Sanofi’s anti-thrombotic drug, Lovenox, could also face generic competition when it goes off-patent in 2012. Generic competition has also dogged Sanofi’s insomnia drug Ambien and cancer drug Eloxatin. Sanofi might face further competition from rival drug giants. Eli Lilly and Co. could receive approval from the Food and Drug Administration on cardiovascular treatment Prasugrel this summer, and could take market share from Plavix, Conover said in a recent report. Plus, Novartis AG is expected to launch a meningitis vaccine to compete with Sanofi’s Manactra. Still, the company is in good shape, with dozens of products in its pipeline to address diseases with no current treatments, and 30 submissions of new products planned by 2010, Conover wrote. Its vaccine business is healthy, racking up sales of . 2.8 billion ($4.4 billion) in 2007. An acquisition of Zentiva would mark Sanofi's biggest move into the generic drugs arena, as the company now only receives 2% of its sales from generic products. In recent months, its major rivals, including Daiichi Sankyo Co. Ltd., Japan's third-largest drug company by sales, have been expanding their generic drug operations. Daiichi in June said it would buy a majority stake in Ranbaxy Laboratories Ltd., a generics firm that has built itself into India's largest drugmaker, in a deal valuing the target at around $8.5 billion. Sanofi's offer values Zentiva at about 2.4 times its 2007 sales of Kcs16.67 billion. Daiichi is paying about 4.7 times Ranbaxy's sales. Analysts expect completion of the Sanofi deal by January. The company is receiving financial advice from French bank BNP Paribas SA and legal counsel from Paul Cronheim and Martin Van Olffen of Netherlands firm De Brauw Blackstone Westbroek as well as law firm Glatzova & Co. of the Czech Republic. Zentiva is taking financial advice from Merrill Lynch & Co. and legal counsel from White & Case LLP and Clifford Chance LLP.


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