Merger Twist - S&P Upgrades Sanofi Aventis (SNY) to Buy

It’s unusual for analysts to upgrade the stock of an acquirer during merger talks. Especially since most analysts think that Sanofi Aventis (NYSE: SNY) will raise its bid for Genzyme (NASDAQ: GENZ) But S&P raised Sanofi to Buy from Hold yesterday. The upgrade was most likely a reaction to Sanofi reaching a 52 week low yesterday. Apparently S&P think that Sanofi’s bid for Genzyme won’t get out of hand, but will go hostile. Sanofi is trading up today. They raised the Price Target of the European shares to 52, but didn’t present a figure for the NYSE shares.

Here are quotes from the report:

“Believing the public offer letter presented to Genzyme shareholders will halt the decline in Sanofi's share price, with M&A jitters and the Lovenox US generic erosion now priced in. The USD69/share offer (37x FY 10 EPS on consensus) is unlikely to be final in our view, and we see Sanofi sweetening the price in the 7-8% range to get negotiations started, but would also argue this is reflected in the current price.

On Monday's conference call CEO Chris Viebacher stated he is "not going to any length" on price but is clearly willing go hostile. Despite Genzyme indicating progress is being made on current manufacturing issues, a hostile approach would preclude Sanofi from conducting full due diligence. As such, we believe a negotiation approach would be preferred. On our FY10-12 EPS stimates, a deal would be earnings accretive by 1.7%, 5.1% and 7.1%, respectively./ Jacob Thrane”