IPO Watch: The Alternative Genzyme IPO (SNY, GENZ, GCVRZ, BBH, IBB, FBT)

March 29, 2011 by Jon C. Ogg

The proposed buyout of Genzyme Corporation (NASDAQ: GENZ) by Sanofi-Aventis (NYSE: SNY) should close this week.  We are about to get a new Genzyme security on the market and that will be the Contingent Value Rights.  This will allow Genzyme holders to ultimately get more than the $74.00 cash buyout price.

These new securities will not be a true IPO but the value of these will possibly fluctuate wildly around news compared to how Genzyme shares used to trade on their own.  Sanofi-Aventis has commenced its exchange offer for Genzyme shares for $74.00 cash and one CVR per share.

The CVRs give former Genzyme holders and new CVR buyers the right to receive additional cash payments if specified milestones related to Lemtrada are achieved over time or a milestone related to production volumes in 2011 for Cerezyme and Fabrazyme is achieved.

Upon closing of the exchange offer, the CVRs will be listed on the Nasdaq market under the ticker symbol “GCVRZ”.  These will trade in short order as the exchange offer to acquire Genzyme currently expires at 11:59 p.m., New York City time, on April 1, 2011.

Genzyme used to trade with tracking stocks before the company reacquired the entities.  Now Genzyme is being acquired by Sanofi-Aventis.  Determining the ultimate value of each CVR will be no easy task, but the value around NOON EST today would have been about $2.03 per CVR if you deduct $74.00 from $76.03.

The Genzyme acquisition is going to have some reallocation ramifications in biotech indexes and ETFs.  The Biotech HOLDRS (NYSE: BBH) have Genzyme as being 10.16% of its fund holdings. iShares Nasdaq Biotechnology (NASDAQ: IBB) has only a 3.24% weighting and First Trust NYSE Arca Biotechnology Index Fund (NYSE: FBT) has a 5.22% weighting for Genzyme.

Investors will still get to trade Genzyme via a new security, but these are not shares.  They are rights, and the ultimate value could be as mush as $14.00 per share through time if all hurdles are met or exceeded.