U.S. biotech company Genzyme rejected an $18.5 billion buyout offer from French drugmaker Sanofi-Aventis on Monday, setting the stage for a protracted and potentially hostile takeover battle.

Genzyme Chief Executive Henri Termeer told Sanofi CEO Chris Viehbacher in a letter that his proposal of $69 a share - made public a day earlier - dramatically undervalued the U.S. company and did not justify entering talks.

Viehbacher, dubbed the "Smiling Killer" by some Sanofi staffers for his cost-cutting zeal, hit back on a call with investors and analysts. He said he was in no hurry and did not expect the process to conclude quickly, but hinted that Sanofi could take a hostile offer directly to Genzyme shareholders. Viehbacher's patience may be limited and Sanofi could make a hostile offer within a few weeks, a source familiar with the situation said. The source was not authorized to speak with the media.

"We are putting $18.5 billion on the table and that's not being taken seriously," Viehbacher said. "The number of players who can mobilize $18.5 billion in cash for Genzyme is pretty limited."

Genzyme investors said they wouldn't accept anything under $75 per share and would support the company if Sanofi attempts to go hostile.
"I think, with what they are offering, Sanofi will get as far with Genzyme's investors as they did with its board," said Michael Obuchowski, chief investment officer at First Empire Asset Management.

Sanofi wants to buy Genzyme, a leading maker of drugs for rare diseases, to fuel growth as some of its key treatments lose patent protection. Sanofi shares have lost 18% this year, while the European healthcare sector is up 3%. Viehbacher said the transaction would not require it to raise fresh capital or put its credit ratings and dividend policy at risk. He also pointed to significant cost savings and a boost to earnings and revenue.

"They could be obliged to slightly increase the offer in order to have important shareholders' approval," said CM-CIC Securities analyst Arsene  Guekam. "For me, it's the first price. Now (Genzyme) management is forced to engage in a dialogue with Sanofi. Even if they say 'no,' they have to justify why."

Genzyme published Termeer's response to Viehbacher on Monday saying: "The Genzyme board is not prepared to engage in merger negotiations with Sanofi based upon an opportunistic proposal with an unrealistic starting price that dramatically undervalues the company."

Genzyme said its board unanimously rejected Sanofi's offer. It pointed out the board includes representatives of major investors, an apparent  reference to activist shareholders Relational Investors and Carl Icahn, which hold 3.8% and 4.9% of Genzyme, respectively.

Sources previously told press representatives that Genzyme wants an offer of at least $75 per share before Sanofi could review its books. Some shareholders want as much as $80 a share to clinch a deal. Genzyme said on Monday that Sanofi and its advisers claim Sanofi is willing to pay more but that the company is unwilling to "bid against" itself.

Viehbacher said Genzyme shareholders now faced the choice between continuing to bet on management, taking the Sanofi premium or betting an unknown company would enter the fray.

"We see Sanofi's tactics to date as being good, weakening the Genzyme shareholder base already by blowing hot and cold via the press on a potential acquisition in the absence of any visible counter-bidder," Jefferies international analysts wrote. "There now seems to be a greater possibility of Sanofi-Aventis going hostile."

Some analysts suggested Genzyme, which is trying to fix manufacturing problems that led to shortages of two of its top drugs and had hit its stock price, may not get a better offer and that a hostile bid by Sanofi could even be lower.

Roche Holding cut its bid to buy out shareholders in U.S. biotech Genentech in 2008 when it turned hostile after Genentech rejected a previous offer, although it subsequently sweetened its offer in 2009.

"I don't think there is a white knight out there. I think this is the only offer Genzyme shareholders will see," said Navid Malik, an analyst at Matrix  Corporate Capital in London, adding that Genzyme stock would drop below $60 without the deal. The Jefferies analysts saw a potential offer of $75 a share and said Sanofi may prefer "the long game of waiting" until Genzyme's annual meeting in May to let shareholders vote on a hostile bid.

Genzyme is the world's dominant supplier of drugs to treat Gaucher and Fabry disease - rare, inherited disorders in which patients lack key enzymes for breaking down fats.