Based on the case study of Sanofi-Aventi's Tender Offer for Genzyme,

1. Starting with management's NOPAT projections in case Exhibit 17, what do you estimate as the free cash flows for 2010 through 2015? How do these cash flows compare with those based on the market scenario given in case Exhibit 18?

Assuming a discount rate of 7.0% for large pharmaceutical companies, what do you estimate as Genzyme's intrinsic market value for the management scenario and the market scenario? Do you think Sanofi will prevail with the $69-per-share offer?

Case Study

The Valuation of Genzyme

After the failed attempt to buy Genzyme from Termeer and the board in August 2010, Sanofi announced on October 5, 2010, that it would make a $69-per-share tender offer directly to Genzyme's shareholders.^[25]Termeer remained very optimistic about the future of Genzyme and was not ready to relinquish his company's independence. Although the $69-per-share offer valued the company at $18.5 billion, Termeer continued to view it as low considering the higher stock prices Genzyme enjoyed in 2008. He also thought the company should be worth more in light of its recently launched shareholder-friendly initiatives, Cerezyme and Fabrazyme's return to normal production, and alemtuzumab, its promising new drug for MS.

Termeer was saving the morning to review the valuation of Genzyme. For the previous year, Genzyme had used Credit Suisse and Goldman Sachs as advisors to provide valuation data for a set of biotech companies that served as "market comparables" (Exhibit 13, Excel Workbook) as well as information about corporate and government interest rates (Exhibit 14, Excel Workbook). The comparables data included commonly used valuation multiples: price-to-earnings ratio (P/E), enterprise-value-to-EBITDA (EV/EBITDA), and enterprise-value-to-sales (EV/S). A recent Sanofi investor presentation argued that the $69-per-share offer was justified when compared to the valuation multiples in the biotech industry (Exhibit 15) and was also in line with stock price premiums paid in other large biotech transactions (Exhibit 16).

Sanofi-aventis Offer Premiums are in Line with Large sanofi aventis Biopharmaceutical Transactions 1-day premiums paid 38% Median: 314 339% 209% Genzyme at 309 Chiron / Novartis Schering AG / Serono / Merck Medimmune / Aloon Novartis Wyeth / Piizer Schering Plough Bayer AG KIGOA AstraZeneca Roche 32308 0210 417 1-month premiums paid 58% Median: 32% 31% 31% 33% 27% Genzyme at 309 Chiron / Schering AG / Serono / Merck Medimmune / Alcon / Novartis Genentech / Wyeth / Pfizer Schering-Plough Novartis Bayer AG AstraZeneen Roche March 72 108 Source Pole rings equity nowwon, and PadNet I) Quie Noverthe announced purchase of Wostlive and cay pie option bendedpurchase price ofmove itis:39% for $10 4mm and remaining Text at $1 50share of me More offer, wake proceed upto 100% of Gooutmoon [Roche Owed - 50% of time of one)Exhibit 17 SANOFI-AVENTIS'S TENDER OFFER FOR GENZYME Genzyme-Financial Forecasts (Management Scenario) in Millions of U.S. Dollars Projected 2009 2010 2011 2012 2013 2014 2015 Revenue Sources Personalized Genetic Health $1,850.0 $1,757.5 $2,284.8 $2,513.2 $3,015.9 Renal and Endocrinology $3,468.3 $3,815.1 $1,008.0 $1,058.4 $1,111.3 $1, 166.9 $1,225.2 $980.2 Biosurgery $784.1 $513.7 $590.8 $679.4 $781.3 Hematology and Oncology $976.6 $1, 171.9 $1,347.7 $509.8 $688.2 $929.1 $1,254.3 $1,630.6 Other $2,038.2 $2,445.9 $29.1 $20.4 $21.4 $22.0 Pipeline (probability adjusted) $22.7 $23.4 $24.1 $0.0 $0.0 $0.0 $25.0 $500.0 $1,100.0 $1,500.0 Revenues $4,076.7 $4,115.5 $5,026.8 $5,763.4 $7,371.8 $8,782.4 $9,917.2 COGS ($1,386.1) ($1,316.9) ($1,533.2) ($1,671.4) ($2, 027.2) ($2,283.4) ($2,578.5) Gross Profit $2,690.6 $2,798.5 $3,493.7 $4,092.0 $5,344.6 $6,499.0 $7,338.7 General & Administrative ($1,428.6) ($1,337.5) ($1,558.3) ($1,786.7) ($2,285.3) ($2, 722.5) ($3,074.3) R&D ($865.3) ($864.2) ($1,055.6) ($1,210.3) ($1,548.1) ($1,844.3) ($2, 082.6) Service and R&D Revenues $438.9 $411.5 $502.7 $576.3 $737.2 $878.2 $991.7 EBITDA $1,008.3 $1,382.4 $1,671.4 $2,248.4 $2,810.4 $3, 173.5 Depreciation & Amortization ($266.3) ($288.1) ($351.9) ($403.4) ($516.0) ($614.8) ($694.2) Other Expenses ($65.6) ($205.8) ($50.3) ($57.6) ($73.7) $0.0 $0.0 Operating Income (EBIT) $503.7 $514.4 $980.2 $1,210.3 $1,658.7 $2, 195.6 $2,479.3 Taxes ($121.4) ($180.1) ($343.1) ($423.6) ($580.5) % Tax rate ($768.5) -22% ($867.8) 35% 35% 35% 35% 35% 35% NOPAT (Net Op Profit After Tax) $382.3 $334.4 $637.2 $786.7 $1,078.1 $1,427.1 $1,611.5Exhibit 18 SANOFI-AVENTIS'S TENDER OFFER FOR GENZYME Genzyme Financial Forecasts (Market Scenario) in Millions of U.S. Dollars Projected 2009 2010 2011 2012 2013 2014 2015 Revenue Sources Personalized Genetic Health $1,850.0 $1,665.0 $2,164.5 $2,489.2 $2,787.9 $3,122.4 $3,497.1 Renal and Endocrinology $1,008.0 $1,038.2 $1,069.4 $1,101.5 $1,134.5 $850.9 $595.6 Biosurgery $513.7 $590.8 $679.4 $781.3 $898.5 $1,033.2 $1,157.2 Hematology and Oncology $509.8 $688.2 $894.7 $1,118.4 $1,342.0 $1,543.4 $1,774.9 Other $29.1 $20.4 $21.0 $21.6 $22.3 $22.9 $23.6 Pipeline (probability adjusted) $0.0 $0.0 $0.0 $20.0 $70.0 $220.0 $300.0 Revenues $4,076.7 $4,002.7 $4,829.7 $5,532.5 $6,255.7 $6,793.0 $7,348.5 COGS ($1,386.1) ($1,280.9) ($1,473.1) ($1,604.4) ($1,720.3) ($1,766.2) ($1,910.6) Gross Profit $2,690.6 $2,721.9 $3,356.7 $3,928.1 $4,535.4 $5,026.8 $5,437.9 General & Administrative ($1,428.6) ($1,300.9) ($1,497.2) ($1,632.1) ($1,845.4) ($2,003.9) ($2,167.8) R&D ($865.3) ($840.6) ($1,014.2) ($1,161.8) ($1,313.7) ($1,426.5) ($1,543.2) Service and R&D Revenues $438.9 $400.3 $483.0 $553.3 $625.6 $679.3 $734.9 EBITDA $980.7 $1,328.2 $1,687.4 $2,001.8 $2,275.7 $2,461.8 Depreciation & Amortization ($266.3) ($280.2) ($338.1) ($387.3) ($437.9) ($475.5) ($514.4) Other Expenses ($65.6) ($200.1) ($48.3) ($55.3) ($62.6) $0.0 $0.0 Operating Income (EBIT) $503.7 $500.3 $941.8 $1,244.8 $1,501.4 $1,800.2 $1,947.4 Taxes ($121.4) ($175.1) ($329.6) ($435.7) ($525.5) ($630.1) ($681.6) NOPAT (Net Op Profit After Tax) $382.3 $325.2 $612.2 $809.1 $975.9 $1,170.1 $1,265.8 Source: Analyst reports and case writer estimates.Our Offer Assumes Alemtuzumab Performs in Line with Analyst Expectations in Multiple Sclerosis sanofi aventis Peak annual sales estimated ($m) $1 037 $932 $800 $700 $675 $604 Median: $700m $370 Barclays Credit Suisse Deutsche Bank Bank of America I Merril Lynch 2013 2013 2013 2012 3011 2013 2012 2020 2018 2015 2018 "According to our analysis, alemfurumab can reach operating margins of only 281% by 2018. This is due citi to high payments to Bayer, relatively high COGS due to production at a third party, and building a global sales force that will be required in Multiple Sclerosis. " - September 17, 2049 "Genzyme will pay Bayer a 20-35%% royalty on sales in Multiple Sclerosis once the drug is approved in 2012 ". March 31, 2009 "While Campath MS remains one of the more compelling disease modifying therapies for MS, we believe BARCLAYS that unique autoimmune foxicities and pricing challenges remain to be addressed" . June 14, 2010 CAPITAL We assume use in Tysabri failures of a new patient add rafe comparable to current Tysabri rate of 200/week" - May 7, 2010 Source: Equity research (1) Includes all Campatindications 11