Wall Street Aflutter With Genzyme (GENZ) Takeover Speculation

Wall Street is weighing-in on Genzyme (Nasdaq: GENZ) following speculation Friday that Sanofi-Aventis (NYSE: SNY) has approached the company with an informal takeover offer, which sparked a surge in the stock price.

Shares of Genzyme closed up 15 percent to $62.52 on Friday and are trading another 5.6 percent higher in pre-open trading Monday.

Most of the analysts agree that a bid in the $70/share range for Genzyme would be fair. However a dissident at Baird thinks a bid in the low-to-mid $60/share range in more appropriate, while an analyst on the opposite side of the spectrum at Piper Jaffray said synergies supports an $89/share bid for Genzyme.

Leerink Swan: "We see GENZ as a potential acquisition target given the strategic nature of its assets, but we lack visibility as to whether SNY will indeed move forward with a bid. Given pipeline gaps in pharma and depressed valuations in the industry, M&A in our sector is likely, in our view. We would therefore not be surprised if these rumors led to something more substantial. Additionally, we note that in our overview of Consent Decrees (March 26, 2010), we found that 4 of 28 companies with a Consent Decree were eventually acquired, which is a higher likelihood than usual. We estimate 20%+ upside to a mid-$70's bid or higher, and 15%+ downside to the mid-$50's if a bid does not materialize, with little way of knowing what is likely to occur or how high SNY would be willing to go with any offer." The firm suspended their Market Perform rating.

Piper Jaffray: "We believe timing of a potential bid is opportunistic, and expect consummation of the deal to be dependent on a purchase price that reflects value for the company without supply constraints. Based on our analysis of historical revenue multiples paid for large biotech/ pharmaceutical acquisitions, we believe a fair value for GENZ shares would be $79-98 per share, assuming a 4-5x 1-year forward revenue multiple applied to our 2011 revenue estimate of $5.3bn. Our sum of the parts analysis, assuming modest synergies of $200-400mn annually, supports a value for GENZ of $89 per share. We believe GENZ, as a standalone company, is worth $78 per share." Maintains Overweight rating, $73 price target

Robert W. Baird: "While we a can't rule out the potential for a higher-priced SNY acquisition, we are sticking to our guns in that we believe this business is likely best valued under a take-out scenario in the low-to-mid $60 range. Keeping in mind that $10 of additional upside is possible, we think it makes sense to trim here given the changed risk/reward profile." The firm reiterated their Neutral rating.

Morgan Joseph: "Based on prior recent large-cap biotech acquisitions, including those of Genentech by Roche (6.5x sales), Medimmune by AstraZeneca (sold at 11x sales), and Serono by Merck (sold at 5.8x sales), the stock is still selling at a discount to its intrinsic valuation. We believe the acquisition price will have to be in the high $70s for Genzyme shareholders to accept any deal based on a 4x multiple of next year's sales." Maintains Buy rating

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