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Sanofi-Aventis’ Tender Offer for Genzyme Case Solution & Answer

Sanofi-Aventis’ Tender Offer for Genzyme Case Solution

The depreciation is added back in the NOPAT of Genzyme and the capital expenditures and the changes in the working capital has been subtracted from NOPAT in order to calculate the free cash flows of Genzyme. Lastly, the terminal value is also calculated at a terminal factor of 5% and the discount factor of 7%.

The Enterprise worth of Genzyme is calculated as $14.662 billion and a share price of $54.71. Table 1 below shows the calculation of the Discounted Cash Flows at 7$ of discount factor and 5% of growth.

Table 1

  2009 2010 2011 2012 2013 2014 2015
 NOPAT 382 334 637 787 1078 1427 1612
 Depreciation 266 288 352 403 516 615 694
 Capital Expenditures 662 668 816 936 1196 1425 1610
 Change in Working Capital 121 122 149 171 218 260 294
 Free Cash flows -134 -168 24 84 179 356 402
 Terminal Value             21117
 Total Free Cash Flows   -168 24 84 179 356 21519
 Discount Factor             7.00%
 Growth Rate             5.00%
 Enterprise Value              $ 14,663
 No of shares              $      268
 Share price              $   54.71

WACC Calculation

The WACC is calculated manually from the data given in the case. The calculation of the WACC requires the costs and weight age of the Equity and Debt. The Cost of Debt is considered as 3.22 for the AA ranking. The tax rate is assumed at 35% for the calculation of the cost of debt after tax. The Cost of Debt is calculated as 2.09 and the Weight for the debt is given in Exhibit 10 as 0.90%. In order to calculate the Cost of Equity, the risk free rate is considered as 2.48%, which is the 10 year maturity treasury bond rate. The beta for the Calculation of the Cost of Equity is also given as 0.7 and the Market premium is observed as 5%. The Cost of Equity is calculated as 4.244% and the weight of the Equity is calculated by subtracting the Weight of debt from 100% as 99.1%. The WACC is calculated with the help of all these values as 4.225%. The Table 2 below shows the calculation of WACC.

Table 2

Cost of Debt 3.22% Risk Free rate 2.48%
Tax rate 35% Beta 0.7
    Market Premium 5%
Cost of Debt After Tax 2.09% Cost of Equity 4.244%
Weight of Debt 0.90% Weight of Equity 99.10%
WACC 4.225%

Discounted Cash Flows

The Discounted Cash Flow is again calculated with the new discount factor, which is calculated with the help of WACC. The Discount Factor is taken as 4.225% with a growth rate of 2.5%. The Worth of the Genzyme is calculated as $19.34 billion and the share price is calculated at $72.17. Table 3 below shows the calculation of the Enterprise value and the Share price from the Discounted Cash Flows.

Table 3

  2009 2010 2011 2012 2013 2014 2015
 NOPAT 382 334 637 787 1078 1427 1612
 Depreciation 266 288 352 403 516 615 694
 Capital Expenditures 662 668 816 936 1196 1425 1610
 Change in Working Capital 121 122 149 171 218 260 294
 Free Cash flows -134 -168 24 84 179 356 402
 Terminal Value             23905
 Total Free Cash Flows   -168 24 84 179 356 24307
 WACC             4.22%
 Growth Rate             2.50%
 Enterprise Value              $ 19,340.80
 No of shares              $      268.00
 Share price              $        72.17

Sensitivity Analysis

Sensitivity analysis has been performed in order to calculate the Enterprise Value of Genzyme and the share price of Genzyme along with different discount factors and growth rates. Moreover, Table 4 and Table 5 below show the sensitivity analysis of the Enterprise Value and Share Price of Genzyme.

Table 4: Sensitivity Analysis of Enterprise Value

  4% 5% 6% 7% 8% 9% 10% 11% 12% 13%
1.50%  $   13,606  $   9,366  $   7,022  $      5,538  $      4,518  $        3,776  $ 3,213  $ 2,772  $ 2,419  $ 2,131
1.75%  $   15,075  $ 10,059  $   7,414  $      5,786  $      4,687  $        3,896  $ 3,302  $ 2,840  $ 2,472  $ 2,173
2.00%  $   16,912  $ 10,867  $   7,856  $      6,060  $      4,869  $        4,025  $ 3,396  $ 2,912  $ 2,528  $ 2,217
2.25%  $   19,273  $ 11,822  $   8,357  $      6,361  $      5,067  $        4,163  $ 3,497  $ 2,988  $ 2,586  $ 2,263
2.50%  $   22,422  $ 12,968  $   8,930  $      6,697  $      5,284  $        4,312  $ 3,605  $ 3,068  $ 2,648  $ 2,311
2.75%  $   26,830  $ 14,368  $   9,590  $      7,072  $      5,521  $        4,473  $ 3,719  $ 3,153  $ 2,713  $ 2,362
3.00%  $   33,442  $ 16,119  $ 10,361  $      7,493  $      5,782  $        4,647  $ 3,842  $ 3,243  $ 2,782  $ 2,415

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