Sanofi$-$Aventis: Genzyme Tender Offer $$ Case Study Instructions $$ Objective The valuation relevance of this case centers on an opportunistic inorganic growth and diversification initiative of one company $($Sanofi$)$ versus an organic growth opportunity of another company $($Genzyme$)$ following a valuation drop resulting from a production contamination issue. Sanofi desires to opportunistically pursue a hostile takeover of Genzyme given its $$Contamination valuation discount$$ while Genzyme believes it can overcome the contamination issue and has a bright organic growth future. This situation presents us with a unique valuation situation given the beliefs and motivations of both companies. Is the tender offer price presented by Sanofi indicative of Genzyme$$s present value of future cash flow growth and return? Each company has a different point of view and our job is to evaluate which has the most appropriate valuation. The case will involve both Relative and Intrinsic valuations to assist in this determination. As an aside, the case provides the opportunity to $$feel$$ the management$/$investor hostile takeover experience. $$ Preparation In addition to thoroughly reviewing the case, you should research the meaning of a tender offer gaining the perspective of both the investor and management and their respective motivations. We will discuss this in class as it is an environmental behavior factor surrounding your valuation. $$ The Case Situation The case focuses on the strategic and financial considerations of a large corporate acquisition. Sanofi has elected a largely inorganic growth strategy centered on the acquisition of future cash flow and return. Genzyme, on the other hand, has elected a largely organic growth strategy through R&D and patent achievement of specialized biotech$-$based drug treatments. A major factor in this pharmaceutical industry case is the $$patent cliff$$ issue and its impact upon future cash flow and return generation. $$ You are provided with two future cash flow projections to evaluate: an optimistic view created by Genzyme management and; a market view created by equity analysts. The two emphasize the importance of patent protection for drugs currently under production and the effects the success of high$-$potential drugs in the pipeline would have. $$ Future cash flow assessment is what should be emphasized in this case and not so much the discount rate. Although information regarding the discount rate is provided I would suggest everyone stick to a discount rate of $7\%,$ the average of all comparables, but differ if you feel compelled to do so$.$ This is a firm valuation case emphasizing the measurement of future free cash flow and the estimation of terminal value using a perpetuity cash flow growth model. However, you will have to reduce your valuation to an estimated share price in order to compare to Sanofi$$s $$69$ offer. Bonus points are available to those who want to take a crack at discussing the strategic fit and leadership issues that you feel may arise from this tender offer takeover. $$

$2.$ Why do you think the estimates differ? Look at the $$Pipeline$$ revenue differences. Put your time into the revenue assumptions. Do you think management has better information or are they optimistically biases? $$