The caution in the markets following the tsunami in Japan and unrest in north Africa provided an unpromising backdrop to French company Sanofi Aventis's $20bn takeover of US biotech firm Genzyme. However, the deal passed off as a resounding success.

When French pharmaceutical giant Sanofi Aventis finally completed the $20bn takeover of US biotech group Genzyme in April this year, it marked the end of a protracted and sometimes painful courtship between the two companies.

Sanofi first approached Genzyme last summer and was firmly rebuffed. In October, the French group made a formal, if unwelcome, offer and there followed months of negotiations before the US biotech group capitulated. Throughout the process, Sanofi was appealing not just to the Genzyme board but to its shareholders – and the company knew its stance would be significantly enhanced if the talk was backed up by solid finance. So, as soon as the offer was formalised in the final quarter of 2010, Sanofi put a $15bn bridging loan in place.

“The bridge finance was a good mechanism because the outcome of the bid was uncertain and it took months to reach agreement with Genzyme. We were not obliged to have the money in place but we felt more comfortable having it there and it showed we meant business both to the Genzyme board and its shareholders,” says Olivier Klaric, vice-president for financing and treasury at Sanofi Aventis.

Refinancing move

The bridge finance would have been extremely expensive to draw down, however, so Mr Klaric always intended to refinance it in the capital markets, if the takeover approach came good. “Our offer was recommended and was going to be finalised on April 1. We had to pay Genzyme shareholders on April 5 so it made sense to issue in the bond market before that,” says Mr Klaric.

The timing was not auspicious. Libya was in turmoil, while Japan was struggling to cope with the tsunami and subsequent worries about nuclear fall-out. Markets were jittery and Sanofi was planning to issue a lot of debt. “The market was very volatile so we realised we would have to be ready to issue earlier than we had intended. Initially, we had planned to a five-week process but we reduced it to three,” says Mr Klaric.

Sanofi was issuing bonds in the US and had already been through the shelf registration process (which allows companies to issue securities in the US) with the Securities and Exchange Commission. Even so, the three-week programme was tight. “Issuing in the US is much more time-consuming than [in] the euro market, so our lawyers, my capital markets team and our bankers worked night and day. There is an awful lot of documentation and legal paperwork when it comes to US issuance, but the market is much deeper and it can be cheaper too,” says Mr Klaric.

Liquidity requirements

Sanofi needed deep, liquid and sophisticated markets. The company issued $7bn of bonds in six tranches – three floating rate notes for one, two and three years and three fixed-rated transactions for three, five and 10 years. Separately, it launched a $7bn US commercial paper programme.

“The commercial paper programme and the bonds were extremely successful. There was a flight to quality after the Japanese disaster and, as a corporate with a AA rating in the pharmaceutical sector, we benefited from that trend. On the [commercial paper] transaction, we achieved an average maturity of 150 days and sub-Libor pricing. The bonds were two and a half times oversubscribed so we actually increased the amount from $6bn to $7bn and priced at the low end of guidance,” says Mr Klaric.

Sanofi started the process at 7:45am New York time on March 22. There was no roadshow or global investor call but the books opened at 8am, one-on-one phone conversations were held with key investors between 9am and 11am and before the calls were even over, the books had reached $14bn.

“The 10-year bond was particularly popular but we closed it and that drove demand to the shorter end. The books closed within hours and the pricing we achieved was remarkable,” says Mr Klaric. “I had three priorities – price, speed and size. I wanted to obtain the best pricing; I needed to close the deal quickly because I did not want to risk leaving the books open overnight and I had to raise a substantial sum of money. In the end, we won on all counts so I was very pleased,” he adds.

Keen appetite

Sanofi had four active book-runners – BNP Paribas, Bank of America Merrill Lynch, JPMorgan and Société Générale. There were also five passive book-runners – Credit Agricole, Deutsche, HSBC, RBS and Santander – as well as two co-leads, Bank of Tokyo and Natixis.

“This was a large and visible deal and it was our first time in the US, so banks were really keen to be a part of it. They were writing to me and calling me up; there were calls to my CFO and CEO; there were even letters from bank presidents to our chairman,” says Mr Klaric.

“But we chose our relationship banks and those who had worked with us in the run-up to the deal,” he adds.

Ultimately, Sanofi’s average cost of funds on the entire $7bn was just 2.21%. The deal’s success was particularly remarkable, given the geopolitical climate at the end of March.

“Five years ago, an earthquake, a nuclear incident and virtual civil war in one of the world’s biggest oil-producing countries would have been enough to bring markets to a standstill. Now markets seemed used to almost anything,” says Mr Klaric.


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