Sanofi (SNY) could potentially spin off its consumer healthcare business. The French pharmaceutical company announced that it has entered into exclusive negotiations with Clayton Dubilier & Rice (CD&R), a U.S. private equity firm, to sell a 50% stake in its consumer health unit, Opella.
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This decision follows the French government’s efforts to secure social commitments and its agreement to take a minority stake in the business. The French government agreed to acquire a minority stake in Opella in reaction to the intense backlash SNY faced for choosing an American firm for the spin-off.
While the exact terms of the negotiation were not disclosed, Opella has been valued at an enterprise value of €16 billion ($17.4 billion), that is,14 times its estimated EBITDA of FY24. Opella manufactures the widely used allergy medicine Allegra and the painkiller Doliprane, among other medicines.
Sanofi Faced Backlash Regarding Spin-off of Opella
The news of this spin-off comes after Sanofi faced backlash within France for choosing the American firm over French rival PAI Partners as the preferred bidder for Opella. Many in France were worried about jobs and profits leaking out of the French economy. Thus, SNY renewed discussions with CD&R only after CD&R made commitments regarding local jobs, investments, and production.
If the transaction proceeds as planned, it is expected to close by the second quarter of next year. Sanofi upgraded its FY24 earnings guidance and stated that, excluding Opella, it expects its earnings to grow by at least a low-single-digit percentage at constant exchange rates. The company indicated that the funds will be used in line with its strategic capital allocation priorities.
Additionally, the company’s management stated that with the potential spin-off of Opella, Sanofi aims to sharpen its focus on pharmaceutical innovation. This divestiture would allow the company to concentrate more on its core business, advancing research and development in areas with higher growth potential.
French Government Will Grab a Minority Stake in Opella
Meanwhile, to prevent a U.S. company from entirely owning the spin-off, Bpifrance, an investment fund owned by the French government, is set to invest between €100 million and €150 million in exchange for a minority stake of 1% to 2% in Opella.
According to a Bloomberg report, French Finance Minister Antoine Armand further outlined the terms of the proposed deal. To keep jobs in France, the deal calls for a €70 million investment in France and penalties for both companies if the commitments are not upheld.
Furthermore, the French government will formally assess the proposal as the spin-off involves foreign investment.
What Is the Price Prediction for SNY Stock?
Analysts remain cautiously optimistic about SNY stock, with a Moderate Buy consensus rating based on two Buys and one Hold. Year-to-date, SNY has increased by more than 10%, and the average SNY price target of $63.67 implies an upside potential of 15.9% from current levels.
