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Boston Capital

A little virus played key role in a big deal

By Steven Syre
Globe Columnist / February 17, 2011

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Often there’s no telling exactly why something happens. Other times you can see cause and effect as clear as day and draw a straight line between those two points.

The agreement to sell Genzyme Corp. of Cambridge to Sanofi-Aventis SA for $20.1 billion falls somewhere in the middle. There are a number of extenuating circumstances, to be sure, but it’s hard to miss the connection between Genzyme’s sale and the summer day in 2009 when company officials first discovered a virus that contaminated drugs the company produced at its plant in Allston.

Did a tiny virus actually trigger the sale of Genzyme, perhaps the most important biotechnology company in Massachusetts? Well, probably not. But I can’t imagine a deal like this taking place right now if Genzyme’s manufacturing disaster had never occurred.

What happened between the detection of the virus and the sale of Genzyme wasn’t so much a chain of events as a series of toppling dominos. The problems at the plant limited production, hurt business, and forced the rationing of drugs for two rare diseases. The damage to the business clobbered the value of Genzyme’s shares, which had been recovering from steep declines suffered in the stock market wreckage of 2008.

All that attracted the attention of activist investor Carl Icahn, who pressed executives hard to revive the value of Genzyme shares — or else. At what may have been the company’s weakest moment in a proxy fight with Icahn, Sanofi began to pursue Genzyme in a kind of tough-love courtship that took nine months and concluded with a deal and a handshake for the cameras yesterday.

“The manufacturing issue had a true impact, there’s no doubt about it,’’ Genzyme chief executive Henri Termeer said yesterday. “It put a light on this company and made us potentially more of a company that [other] companies looked at.’’

Termeer stopped well short of connecting the dots between the manufacturing problems of 2009 and the sale of his company. Sanofi chief Chris Viehbacher, the man writing the check for $20 billion to Genzyme shareholders, said he was motivated by a series of other factors unrelated to the Allston problems.

Viehbacher said Sanofi executives had conducted a strategic review and came to several conclusions: Sanofi needed new products to sell and decided it should purchase a drug maker worth as much as $20 billion. The target company would have strong research capabilities in the United States. Genzyme, Viehbacher said, popped up on the Sanofi screens very early in 2010.

Sanofi executives believed they had to act soon for two reasons. The cost of borrowing money was extraordinarily cheap at the time, but they thought it would not remain so for long. The executives examined competitors to Sanofi that were capable of striking a similar-sized deal and concluded all were busy with other priorities. Moving fast meant little or no competition from big companies that could drive up the eventual transaction price, said Viehbacher.

“For us, it was more of a question of what our competitors were doing, how cheap debt was, and what we wanted to do,’’ he said. “That’s why I didn’t really want to wait. The circumstances were ideal for where our company was.’’

All of that explains why Viehbacher wanted to make a deal and — perhaps — even why Genzyme would show up on Sanofi’s screens.

But Viehbacher is well known for taking a hard-line on the price Sanofi pays for businesses. I doubt Genzyme would have been available at a price he could swallow if the disaster at the Allston plant had never happened. Termeer wouldn’t have been under the gun, and he would have held out for more from any suitor.

Without the manufacturing problem in its background, Genzyme would still be selling hugely profitable legacy drugs with promising new candidates in the pipeline. In today’s stock market, which pays dearly for companies with good growth stories, Genzyme shares would be very popular on their own.

Many factors influence any big business decision. But a microscopic virus detected a year and a half ago played a big part in the sale of an important Massachusetts company yesterday.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.