Biotechnology company Genzyme may be holding out for more money from suitor Sanofi-Aventis,but will find it difficult to persuade investors it is better off on its own.

France's Sanofi has offered $69 a share, or $18.4 billion, for Genzyme, sources familiar with the process told Reuters nearly two weeks ago.

Since then few details about the process have emerged and Genzyme shares have started to bleed some of the gains seen since news of Sanofi's interest emerged in late July. They closed at $66.30 on Friday.

Genzyme and Sanofi remain in contact and continue to talk, but no CEO-to-CEO meetings have taken place yet, one source familiar with the situation said.

Genzyme, of course, wants more - as much as $80-plus a share, sources said. Analysts see the deal getting done between $74 to $77 per share.

If Genzyme rejects Sanofi, the maker of drugs for rare and chronic diseases would have to justify to its shareholders that it can do a better job of resolving its manufacturing problems and providing stronger returns on its own.

"If they go to sale, they can make shareholders whole right now, or if they decide to go it alone, it's going to take a long time to get the stock higher. If I had been buying the stock in the $50s and had a deal for $69, I'd be taking it because it's a nice reward," Jon Stephenson, an analyst with Summer Street Research said on Friday.

Stephenson believes Genzyme shares would fall back to the low $50s if deal talks dissolve and says it would take at least 12 months for the company to work its way back from there.

"Do you reject a $70-something deal on the hope that your stock will be in the $80s in a few years? The time return on money in that equation doesn't hold much water if you're just a short-term investor," said one arbitrageur who declined to be named because he was not authorized to speak with the media.

Genzyme, which has said it aims to sell three non-core businesses, told investors last month it had a multi-year plan in place to make the company more efficient. At the same time, it posted a drop in second-quarter earnings and it cut its profit forecast for the year.

Earlier this week, Genzyme also said it would take longer to fix manufacturing problems - up to four years - that led to shortages of two of its biggest drugs.

As part of the consent decree with the U.S. government, Genzyme is required to move its filling and finishing operations for products sold in the U.S. out of its plant in Boston by Nov. 28. due to a viral contamination.

Shareholder Patience
Bolstering Genzyme's argument is the fact that its share price has suffered from a defined set of problems that it is working to rectify, rather than a more general concern about its growth prospects.

"While it won't be an immediate recovery, people ought to and should have patience as they move through something so serious and time consuming. But I think they are doing that," said RBC Capital Markets analyst Michael Yee. He has a "sector perform" rating on Genzyme.

"If the company continues to execute on its manufacturing supply recovery plan, fundamentals will continue to improve and shareholders will push the stock higher," he said.

Genzyme also has some positive developments on the horizon, including a promising second-generation Gaucher disease drug and an already marketed cancer drug called Campath for potential use in treating multiple sclerosis, analysts said.

But any uncertainty over its ability to make the fix, as well as concerns over an industry where competition is evolving, could still weigh on investors' minds.

In addition, Genzyme activist shareholders Relational Investors and Carl Icahn hold 3.8% and 4.9% of Genzyme, respectively, giving them a key role in getting a deal. Relational and Icahn bought shares of Genzyme at roughly $61 and $54, Citigroup analysts said.

"What's the catalyst they offer investors: wait a few years?" said a second source familiar with the situation, who declined to be named. The source was not authorized to speak to the media.

Neither Relational, nor Icahn could be reached for comment.

Holding Talks, Not Heated Negotiations
As contact between the sides continues, neither company's executives or bankers have put August vacation plans on hold because the discussions are not yet at the round-the-clock stage and may never get there, the first source said.

"We're doing the dance. It's still relatively early in the process," said the source, who declined to be named since he was not authorized to speak with the media. Each side has "said what they want and everyone's still digesting it."

According to the DealReporter, a financial news service affiliated with the Financial Times Group, Sanofi is asking Genzyme's board to agree to give Sanofi the right to match any potential rival bid. Such a matching rights agreement, though not uncommon, would be accompanied by large break-up fees.
Genzyme wants a commitment to increase the current offer with little or no conditions attached, DealReporter said.

Genzyme and Sanofi could not be reached for comment.

The long silence from the companies has spooked the market somewhat, with fears that Sanofi could be losing interest, traders said.

But one executive at a large drugmaker not involved in the process said a period of extended haggling was to be expected, given the size and complexity of the Genzyme business.

Industry analysts also are warming to the logic of Sanofi buying Genzyme, not only to help it replace sales and earnings lost to generics as patents on its older drugs expire, but also to boost its overall presence in biotechnology.

Jeffrey Holford, an industry analyst at Jefferies, believes buying Genzyme at anywhere in the range of $70 to $80 a share would boost Sanofi's mid-term earnings per share by more than 10%.