Genzyme sells business unit and announces cuts

Two big numbers are making the news right now for Genzyme as it works to either fend off a potential takeover by French pharma sanofi-aventis or drive up the offer price: $925 million and 1,000. The former is the price Genzyme will get for selling its Genzyme Genetics business unit to Burlington, N.C.-based Laboratory Corporation of America Holdings, better knowns as LabCorp. The latter is roughly the number of jobs—some 10 percent of its workforce worldwide—that Genzyme plans to cut by 2012.

Reports of the $925 million dollar deal made the news with the Sept. 13  announcement by LabCorp that subject to customary closing conditions, it will buy Genzyme Genetics and, net of expected income tax benefits—less acquisition-related expenses—the acquisition will pose a net cash cost to LabCorp of approximately $795 million.

“Genzyme Genetics is among the premier genetics and oncology laboratories in the United States. It has an excellent clinical reputation, a track record of growth and innovation and outstanding people,” says David P. King, chairman and CEO of LabCorp. “This acquisition will substantially expand our capabilities in reproductive, genetic, hematology-oncology and clinical trials central laboratory testing. The acquisition of Genzyme Genetics provides us with an unprecedented opportunity for revenue growth in our key strategic focus areas of esoteric testing and personalized medicine.”

Genzyme Genetics performs more than 1.5 million high-quality, high-clinical-value tests annually, with reported revenue in 2009 of approximately $371 million. LabCorp has reported that it is committed to keeping the unit’s 1,900 employees, and it will gain all of Genzyme Genetics’ services, technology and intellectual property rights, as well as its nine testing laboratories.

Although the sale of the business unit coincides closely with the acquisition overtures by sanofi-aventis and the cold shoulder to sanofi from Genzyme, the divestment of Genzyme Genetics doesn’t appear to be an out-of-the-blue response. Back in May, the company announced a series of strategic moves, including buying back $2 billion dollars worth of its stock, largely with proceeds to be gained by ridding itself of three businesses that are not part of its core operation.

Genzyme’s genetic testing, diagnostics and pharmaceutical intermediates businesses were all put on the potential bidding floor in May, with Genzyme CEO Henri Termeer saying at the time, “As we evaluated our company to create a mix of businesses that will deliver sustainable growth and stronger returns on invested capital, it became clear that these businesses do not fit within this strategy.”

With the sale of the genetic testing unit presumably behind it, Genzyme has indicated that it is still on track in its plans to sell the diagnostic products and pharmaceutical intermediates units.

The other news, about the job cuts, seems to have reached the Genzyme workforce first late on Friday, Sept. 10. That announcement came via a memo to employees from Termeer, though the Boston Herald and the Boston Globe were quick to get wind of—and get copies of—the memo and report on the news.

In announcing a roughly 10 percent cut of the more than 12,000-strong Genzyme workforce, Termeer told employees, “The recent takeover proposal reinforces how important it is to take control and maximize the value we bring to patients and shareholders.”

A Genzyme spokesperson confirmed that the company is cutting jobs, saying that further details would be revealed this week and adding that the cuts would have happened even in the absence of interest from sanofi-aventis in a merger or takeover.

Speaking about the sale of the Genzyme Genetics unit, Geoffrey Porges, an analyst with Sanford Bernstein & Co., told Bloomberg that sanofi may now feel pressures by the sale of the unit to increase the amount of its offer to acquire Genzyme. “Genzyme is making it clear they’re not sitting around waiting for Sanofi to raise their bid,” he said.

“Our offer to acquire Genzyme for $69 a share in cash remains unchanged,” Jean-Marc Podvin, a Paris-based spokesman for sanofi told Bloomberg, and sanofi-aventis’ CEO, Chris Viehbacher, made it clear in an Aug. 30 conference call that the Genzyme Genetics unit wasn’t a major focus in the acquisition bid.

Still, Michael Yee, an analyst with RBC Capital Markets, noted in a report Sept. 13 that sanofi’s bid for Genzyme may rise “into the low $70s,” adding that sales of the diagnostics and pharmaceuticals units could generate a combined $1.3 billion.