SANOFI AVENTIS TENDER OFFER FOR GENZYME  Case Solution

  • The bargaining power of customers: The power of customers in patent products is very low as those products are only available to one company after many years of research which is why the bargaining power to customers is low in patent products. However,the power in generic products is high for the customers as generic products could be available to many companies.
  • The bargaining power of supplier: The bargaining power of suppliers is very high in this industry. Most of the companies are its major suppliers as products are researched in the companies’own labs. If the lab is owned by someone else, then the power of suppliers remains high as it can find many buyers for its newly developed products.
  • The intensity of rivalry: The intensity of rivalry is high in generic products however, it is very low in patent products. There are many players in this market, which are competing agains teach other on price (generic products), and market share.

Financial Analysis

The financial position of the company weakened from the March of the year 2009 asFDA issued a warning letter to the company for less standard production Allston plant. This plant produced Cerezym and the Febrazym drugs, both of these were altogether contributing 40% of the revenue to the company’s accounts. This plant was shutdown by the company for maintenance purpose and the production of both drugs was terminated temporarily.

2007 2008 2009
Current Ratio 1.766819 2.752031 2.594876
Quick Ratio 1.470905 2.256083 2.03196
Net Profit Margin 12.6% 9.1% 9.4%
Gross Margin 76% 75% 69%
Inventory Turnover 8.68 10.16 7.43
Accounts receivable turnover 4.22 4.44 5.02
Debt to Equity 0.122544 0.018055 0.037217
EPS $1.82 $1.57
  • The liquidity position of the company analyzes the ability of the company to repay its short-term obligations. This can be measured through current ratio and quick ratio. Both of these suggest that the liquidity position of the company is strong however, it has declined significantly due to the increase in current liabilities.
  • The profitability position of the company declined significantly from 2007 to 2008, which shows that the company failed in controlling its cost structure. Its net profit margin declined from 12.6% to 9.1% and then reached to 9.4%.
  • Activity ratios determine the efficiency of the management in terms of converting the raw material into finished goods and then selling it to the customers. It can be determined through inventory turnover ratio which increased from 2007 to 2008 but again declined in 2009.
  • The solvency position of the company identifies the company’s ability to repay its long-term obligations. The debt to equity could be its perfect measure, which is declined from 0.12 to 0.03 from 2007 to 2009. It shows that the company’s debt has decreased relative to equity. Therefore, it should streng then its solvency position.

DCF ANALYSIS

Discounted cash flow analysis of the company started with NOPAT (which was calculated in case). As per analysts’ view the share price of the company should be $69, which was previously offered by Sanofi to the shareholders of Genzyme. Moreover, as per the projections of the management, the discounted cash flows are presented in the following table………………

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