Photo of Charles-Edouard Castaigne and Laurence Valentin, Sanofi, Alex Baudon, J.P. Morgan.

This was Sanofi’s debut deal in the dollar SEC-registered market and embedded the largest bond transaction done in 2011 globally. It has enabled Sanofi to raise a significant amount of finance at record low interest rates. The magnitude of this cheap financing has been a key factor in the positive evolution of the company’s share price, with a mechanical lowering of Sanofi’s weighted average cost of capital.

“Financing the external growth was one of Sanofi’s key challenges when it was launching a hostile bid for Genzyme,” explains Laurence Valentin, Corporate Treasurer at Sanofi. The French pharmaceutical company offered Genzyme shareholders $74 cash per share, valuing the US biotech firm at $19.6 billion (plus contingent value rights).

The $20 billion Sanofi raised in the dollar bond market exceeded what might have been raised via its revolving credit facility (RCF) – which totalled €12 billion at the time – without jeopardising the liquidity. Hence, it was necessary to raise extra financing, purely dedicated to the transaction – $15 billion bridge financing – as pre-financing.

Later, during the re-financing stage, it was necessary to access three markets to balance the sourcing of funds: $7 billion from the US bond market, $7 billion from the US CP market and finally bank financing drawn from the aforementioned bridge financing. “To prepare the US investor community for a possible large size bond issuance in the context of a debt financed acquisition, we filed a shelfregistration with the SEC in March 2010 – well before the Genzyme deal was mooted, Valentin explains.

Thanks to the involvement of its various teams – capital markets, front office together with middle and back offices, liquidity management, subsidiary financing – acting under a very structured project management approach, Sanofi’s treasury department has demonstrated the qualities and skills that are necessary to ensure the success of a major crossborder acquisition deal while making sure the day-to-day business keeps ticking over. “By securing our financing before the announcement of this major M&A transaction, we ensured that day-to-day business would remain unaffected by the Genzyme deal,” Valentin adds.

By closely coordinating the bond issuance with a jumbo US CP ramp-up, Sanofi benefited from both a maximisation of the amount issued and an optimisation of the cost of its debt. Sanofi also issued contingent value rights to bridge the valuation gap between sellers and purchasers regarding one particular product of the target’s portfolio. Finally Sanofi, while proposing a scrip dividend to its shareholders shortly after the transaction, managed to limit its 2011 peak funding.

Despite the magnitude of the transaction, the deal’s impact on Sanofi’s rating remained very limited, with a one notch downgrade by Moody’s (from A1 to A2) while Standard and Poor’s reaffirmed the AA- rating. Short term ratings of (A1+/ P1) remained unchanged, allowing for the massive recourse to the US commercial paper (CP) market. In the extremely volatile market environment following the Fukushima nuclear accident, Sanofi made the choice to set in advance the reference rate of roughly 40% of the nominal amount of its fixed rate bonds so that it could avoid becoming fully dependent on the conditions dictated on the day of issuance.

“Thanks to active preparation with the bank used for the settlement of the transaction – which involved teams in Paris and New York – we ensured the corresponding jumbo payments could be processed seamlessly at the time of closing,” Valentin says. “Also, given the extreme sensitivity of the deal – ie its size and the hostile bid over a listed company in the US – we were very pleased with the results.”