France's Sanofi-Aventis on Sunday publicly disclosed its $18.5 billion, $69-per-share cash offer for Genzyme in a bid to rouse shareholders after failing to engage the U.S. biotechnology company in merger talks. Sanofi said it is considering all options to complete the transaction, hinting it would consider a hostile takeover bid.

The so-called "bear hug" letter aims to pressure Genzyme to respond to the offer or justify to its shareholders why it has not held negotiations. "It is our preference to work together with you and the Genzyme board to reach a mutually agreeable transaction," Sanofi Chief Executive Chris Viehbacher wrote to his counterpart at Genzyme, Henri Termeer.

"Your continued refusal to enter into constructive discussions will serve only to further delay the ability of your shareholders to receive the substantial value represented by our all-cash offer," the letter said. Genzyme was not immediately available for comment.

"I'm pleased to see they're being disciplined in price," said Marc Booty, a fund manager at Pictet. "This is a very interesting first salvo." "It's a clever strategy. They weren't getting anywhere in negotiations and now they're trying to flush out other buyers and information from Genzyme to justify if a higher price is required," Booty said.

Sanofi has stopped short of making a direct approach to Genzyme shareholders and sources familiar with the matter have said it is not keen to do so. But analysts and traders said its move on Sunday takes the company one step closer to a hostile bid. "This signals that they are willing to play hardball and could go hostile. The fact that they are standing pat with their offer is a sign they aren't going to be swayed from their course," said an arbitrageur, who declined to be named because he was not authorized to speak to the media.

"That's not a positive for Genzyme holders, who have been hoping for a higher premium," said the trader, who specializes in takeover stocks. Sources previously told press representatives that Genzyme wants an offer of at least $75 per share before Sanofi could review its private financial records. Some shareholders want as much as $80 a share to clinch a deal.

However, Sanofi's top two shareholders - cosmetics group L'oreal and oil company Total - worry that the company might pay too much for Genzyme and are not convinced it is the best fit, bankers said last week. For details, see News of Sanofi's initial approach to Genzyme emerged late in July and the French drugmaker sent a written expression of interest on July 29.

Sanofi said that Genzyme rebuffed the offer on Aug. 11, but after some persuasion, agreed to a meeting of financial advisers on Aug. 24. "We had one phone call in general terms and (Genzyme) immediately called a board meeting and said they weren't for sale without me even saying the price," Viehbacher said on a conference call.

When asked about how Sanofi will proceed, Viehbacher said: "There is no reason to be discussing the next step when we are at this step now ... No reason to be discussing another price."

Hostile Bid Option

Analysts have said they expect a deal to be finalized in the range of $74 to $77 a share. If Sanofi walks away, analysts see shares of Genzyme falling to the low $50-range. Some say it could take at least a year for them to rebuild the lost value.

"Of course Sanofi will go hostile if management doesn't accept the offer," said Karl Heinz Koch, an analyst at Helvea in Zurich. "I think this is a great offer. What do you do as a shareholder if the stock's at $52.50 and you can sell at $69? You get rid of your shares. I don't think Sanofi (will) have to raise their offer much," Koch said.

Sanofi said it had taken into account an "anticipated recovery in Genzyme's performance in 2011," as the biotech company tries to rectify manufacturing problems that led to shortages of two of its top drugs - Cerezyme, its drug to treat Gaucher disease, and Fabrazyme, its drug for Fabry disease - and hit its stock price over the past year.

Sanofi said it believes it could help Genzyme fix its manufacturing problems "quickly and successfully" and perhaps accelerate the process with the expertise of the combined company.

Last year Genzyme was forced to temporarily close its manufacturing plant in Boston because of a viral contamination, leading to shortages of   Cerezyme and Fabrazyme. Genzyme has said it could take up to four years to resolve the problems.

"I understand management doesn't want to sell below value, that they want to stage a recovery first before starting negotiations," Koch said. Sanofi said its offer represents almost a 31% premium over Genzyme's stock price before press speculation that a bid had been made. Based on analyst consensus estimates, the offer represents a multiple of 36 times Genzyme's 2010 earnings per share and 20 times 2011 earnings per share, Sanofi said.

"The big question is exactly what the difficulties are with the manufacturing problems at Genzyme and to assess that Sanofi needs to see the books," said Mike Ward, an industry analyst at Ambrian Partners in London. "I suspect they will go a little bit higher - the mid-$70's should probably do it," Ward said.

Sanofi said it had financing for the offer from BNP Paribas and JP Morgan and that it has not talked to Genzyme activist shareholders. Shareholders  relational investors and Carl Icahn hold 3.8% and 4.9% of Genzyme, respectively. Relational and Icahn could not be immediately reached for comment.