Could Sanofi add PAH to the rare disease portfolio?
Bloomberg reports that Sanofi is considering a bid for Actelion
On 25 November, both Actelion and JNJ issued press releases confirming they were in early
discussions with one another regarding a potential transaction. Bloomberg has reported a JNJ bid
of at least CHF 250/share. Since then Actelion stock has rallied ca 30%. This morning, Bloomberg
reports that Sanofi may also be interested in entering the fray for Actelion.
An Actelion acquisition makes sense for Sanofi, but price is likely to be high
Following the failure of the Medivation acquisition in August, Sanofi remains on the lookout for an
acquisition to add near-term sales and profits or to boost pipeline. In the context of a lacklustre
EPS growth profile (+3-4% 2016-21), an acquisition could accelerate earnings growth and possibly
expedite the inflection point for EPS growth and upgrades. We see Actelion as a good candidate to
fill Sanofi’s earning gap, with profits from recently launched Opsumit and Uptravi (PAH) and costsynergies
allowing strong and immediate earnings accretion. However, JNJ’s involvement and
Actelion’s reticence to give up its independence are likely to make such a deal expensive.
Our M&A flexor indicates EPS accretion would be significant, but ROIC less compelling
In this note, we provide a combined P&L, showing our EPS accretion and ROIC calculations. We
use a CHF260/share acquisition price (ca EUR26bn total value), assume EUR500m synergies by
year 3 (10% COGS, 60% R&D, 30% SG&A), 1% cost of debt and no tax benefits. With a 100%
debt funded acquisition, we see earnings accretion of 12% in the first full year (2018) rising to 19%
by 2021. However, we do not see ROIC above WACC before 2022e.