management’s NOPAT projections in case Exhibit 17, what do you estimate as the free cash flows for 2010 through 2015? How do these cash flows compare with those based on the market scenario given in case Exhibit 18? Assuming a discount rate of 7.0% for large pharmaceutical companies, what do you estimate as Genzyme’s intrinsic market value for the management scenario? The market scenario? Please express your estimates as both an enterprise value and as a price per share. Be prepared to discuss and defend the key assumptions you made in your analysis. Exhibit 17 SANOFI-AVENTIS’S TENDER OFFER FOR GENZYME Genzyme—Financial Forecasts (Management Scenario) in Millions of U.S. Dollars Projected 2009 2010 2011 2012 2013 2014 2015 Revenue Sources Personalized Genetic Health $1,850.0 $1,757.5 $2,284.8 $2,513.2 $3,015.9 $3,468.3 $3,815.1 % Growth -5% 30% 10% 20% 15% 10% Renal and Endocrinology $1,008.0 $1,058.4 $1,111.3 $1,166.9 $1,225.2 $980.2 $784.1 % Growth 5% 5% 5% 5% -20% -20% Biosurgery $513.7 $590.8 $679.4 $781.3 $976.6 $1,171.9 $1,347.7 Hematology and Oncology $509.8 $688.2 $929.1 $1,254.3 $1,630.6 $2,038.2 $2,445.9 Other $29.1 $20.4 $21.4 $22.0 $22.7 $23.4 $24.1 Pipeline (probability adjusted) $0.0 $0.0 $0.0 $25.0 $500.0 $1,100.0 $1,500.0 Revenues $4,076.7 $4,115.3 $5,025.9 $5,762.7 $7,371.0 $8,782.0 $9,916.9 COGS ($1,386.1) ($1,316.9) ($1,532.9) ($1,671.2) ($2,027.0) ($2,283.3) ($2,578.4) Gross Profit $2,690.6 $2,798.4 $3,493.0 $4,091.5 $5,344.0 $6,498.6 $7,338.5 General & Administrative ($1,428.6) ($1,337.5) ($1,558.0) ($1,786.4) ($2,285.0) ($2,722.4) ($3,074.2) R&D ($865.3) ($864.2) ($1,055.4) ($1,210.2) ($1,547.9) ($1,844.2) ($2,082.5) Service and R&D Revenues $438.9 $411.5 $502.6 $576.3 $737.1 $878.2 $991.7 EBITDA $835.6 $1,008.2 $1,382.1 $1,671.2 $2,248.1 $2,810.2 $3,173.4 Depreciation & Amortization ($266.3) ($288.1) ($351.8) ($403.4) ($516.0) ($614.7) ($694.2) Other Expenses ($65.6) ($205.8) ($50.3) ($57.6) ($73.7) $0.0 $0.0 Operating Income (EBIT) $503.7 $514.4 $980.1 $1,210.2 $1,658.5 $2,195.5 $2,479.2 Taxes ($121.4) ($180.0) ($343.0) ($423.6) ($580.5) ($768.4) ($867.7) NOPAT (Net Op Profit After Tax) $382.3 $334.4 $637.0 $786.6 $1,078.0 $1,427.1 $1,611.5 Exhibit 18 SANOFI-AVENTIS’S TENDER OFFER FOR GENZYME Genzyme—Financial Forecasts (Market Scenario) in Millions of U.S. Dollars Projected 2009 2010 2011 2012 2013 2014 2015 Revenue Sources Personalized Genetic Health $1,850.0 $1,665.0 $2,164.5 $2,489.2 $2,787.9 $3,122.4 $3,497.1 % Growth -10.0

management’s NOPAT projections in case Exhibit 17, what do you estimate as the free cash flows for 2010 through 2015? How do these cash flows compare with those based on the market scenario given in case Exhibit 18? Assuming a discount rate of 7.0% for large pharmaceutical companies, what do you estimate as Genzyme’s intrinsic market value for the management scenario? The market scenario? Please express your estimates as both an enterprise value and as a price per share. Be prepared to discuss and defend the key assumptions you made in your analysis. Exhibit 17 SANOFI-AVENTIS’S TENDER OFFER FOR GENZYME Genzyme—Financial Forecasts (Management Scenario) in Millions of U.S. Dollars Projected 2009 2010 2011 2012 2013 2014 2015 Revenue Sources Personalized Genetic Health $1,850.0 $1,757.5 $2,284.8 $2,513.2 $3,015.9 $3,468.3 $3,815.1 % Growth -5% 30% 10% 20% 15% 10% Renal and Endocrinology $1,008.0 $1,058.4 $1,111.3 $1,166.9 $1,225.2 $980.2 $784.1 % Growth 5% 5% 5% 5% -20% -20% Biosurgery $513.7 $590.8 $679.4 $781.3 $976.6 $1,171.9 $1,347.7 Hematology and Oncology $509.8 $688.2 $929.1 $1,254.3 $1,630.6 $2,038.2 $2,445.9 Other $29.1 $20.4 $21.4 $22.0 $22.7 $23.4 $24.1 Pipeline (probability adjusted) $0.0 $0.0 $0.0 $25.0 $500.0 $1,100.0 $1,500.0 Revenues $4,076.7 $4,115.3 $5,025.9 $5,762.7 $7,371.0 $8,782.0 $9,916.9 COGS ($1,386.1) ($1,316.9) ($1,532.9) ($1,671.2) ($2,027.0) ($2,283.3) ($2,578.4) Gross Profit $2,690.6 $2,798.4 $3,493.0 $4,091.5 $5,344.0 $6,498.6 $7,338.5 General & Administrative ($1,428.6) ($1,337.5) ($1,558.0) ($1,786.4) ($2,285.0) ($2,722.4) ($3,074.2) R&D ($865.3) ($864.2) ($1,055.4) ($1,210.2) ($1,547.9) ($1,844.2) ($2,082.5) Service and R&D Revenues $438.9 $411.5 $502.6 $576.3 $737.1 $878.2 $991.7 EBITDA $835.6 $1,008.2 $1,382.1 $1,671.2 $2,248.1 $2,810.2 $3,173.4 Depreciation & Amortization ($266.3) ($288.1) ($351.8) ($403.4) ($516.0) ($614.7) ($694.2) Other Expenses ($65.6) ($205.8) ($50.3) ($57.6) ($73.7) $0.0 $0.0 Operating Income (EBIT) $503.7 $514.4 $980.1 $1,210.2 $1,658.5 $2,195.5 $2,479.2 Taxes ($121.4) ($180.0) ($343.0) ($423.6) ($580.5) ($768.4) ($867.7) NOPAT (Net Op Profit After Tax) $382.3 $334.4 $637.0 $786.6 $1,078.0 $1,427.1 $1,611.5 Exhibit 18 SANOFI-AVENTIS’S TENDER OFFER FOR GENZYME Genzyme—Financial Forecasts (Market Scenario) in Millions of U.S. Dollars Projected 2009 2010 2011 2012 2013 2014 2015 Revenue Sources Personalized Genetic Health $1,850.0 $1,665.0 $2,164.5 $2,489.2 $2,787.9 $3,122.4 $3,497.1 % Growth -10.0

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 10P

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Question

Starting with management’s NOPAT projections in case Exhibit 17, what do you estimate as the free cash flows for 2010 through 2015? How do these cash flows compare with those based on the market scenario given in case Exhibit 18?

Assuming a discount rate of 7.0% for large pharmaceutical companies, what do you estimate as Genzyme’s intrinsic market value for the management scenario? The market scenario? Please express your estimates as both an enterprise value and as a price per share. Be prepared to discuss and defend the key assumptions you made in your analysis.


Exhibit 17
SANOFI-AVENTIS’S TENDER OFFER FOR GENZYME
Genzyme—Financial Forecasts (Management Scenario) in Millions of U.S. Dollars

		Projected
	2009	2010	2011	2012	2013	2014	2015
Revenue Sources
Personalized Genetic Health	$1,850.0	$1,757.5	$2,284.8	$2,513.2	$3,015.9	$3,468.3	$3,815.1
% Growth		-5%	30%	10%	20%	15%	10%
Renal and Endocrinology	$1,008.0	$1,058.4	$1,111.3	$1,166.9	$1,225.2	$980.2	$784.1
% Growth		5%	5%	5%	5%	-20%	-20%
Biosurgery	$513.7	$590.8	$679.4	$781.3	$976.6	$1,171.9	$1,347.7
Hematology and Oncology	$509.8	$688.2	$929.1	$1,254.3	$1,630.6	$2,038.2	$2,445.9
Other	$29.1	$20.4	$21.4	$22.0	$22.7	$23.4	$24.1
Pipeline (probability adjusted)	$0.0	$0.0	$0.0	$25.0	$500.0	$1,100.0	$1,500.0

Revenues	$4,076.7	$4,115.3	$5,025.9	$5,762.7	$7,371.0	$8,782.0	$9,916.9

COGS	($1,386.1)	($1,316.9)	($1,532.9)	($1,671.2)	($2,027.0)	($2,283.3)	($2,578.4)

Gross Profit	$2,690.6	$2,798.4	$3,493.0	$4,091.5	$5,344.0	$6,498.6	$7,338.5

General & Administrative	($1,428.6)	($1,337.5)	($1,558.0)	($1,786.4)	($2,285.0)	($2,722.4)	($3,074.2)

R&D	($865.3)	($864.2)	($1,055.4)	($1,210.2)	($1,547.9)	($1,844.2)	($2,082.5)

Service and R&D Revenues	$438.9	$411.5	$502.6	$576.3	$737.1	$878.2	$991.7

EBITDA	$835.6	$1,008.2	$1,382.1	$1,671.2	$2,248.1	$2,810.2	$3,173.4

Depreciation & Amortization	($266.3)	($288.1)	($351.8)	($403.4)	($516.0)	($614.7)	($694.2)

Other Expenses	($65.6)	($205.8)	($50.3)	($57.6)	($73.7)	$0.0	$0.0

Operating Income (EBIT)	$503.7	$514.4	$980.1	$1,210.2	$1,658.5	$2,195.5	$2,479.2

Taxes	($121.4)	($180.0)	($343.0)	($423.6)	($580.5)	($768.4)	($867.7)

NOPAT (Net Op Profit After Tax)	$382.3	$334.4	$637.0	$786.6	$1,078.0	$1,427.1	$1,611.5


Exhibit 18
SANOFI-AVENTIS’S TENDER OFFER FOR GENZYME
Genzyme—Financial Forecasts (Market Scenario) in Millions of U.S. Dollars

		Projected
	2009	2010	2011	2012	2013	2014	2015
Revenue Sources
Personalized Genetic Health	$1,850.0	$1,665.0	$2,164.5	$2,489.2	$2,787.9	$3,122.4	$3,497.1
% Growth		-10.0%	30.0%	15.0%	12.0%	12.0%	12.0%
Renal and Endocrinology	$1,008.0	$1,038.2	$1,069.4	$1,101.5	$1,134.5	$850.9	$595.6
Biosurgery	$513.7	$590.8	$679.4	$781.3	$898.5	$1,033.2	$1,157.2
Hematology and Oncology	$509.8	$688.2	$894.7	$1,118.4	$1,342.0	$1,543.4	$1,774.9
Other	$29.1	$20.4	$21.0	$21.6	$22.3	$22.9	$23.6
Pipeline (probability adjusted)	$0.0	$0.0	$0.0	$20.0	$70.0	$220.0	$300.0

Revenues	$4,076.7	$4,002.6	$4,828.9	$5,531.9	$6,255.2	$6,792.8	$7,348.4

COGS	($1,386.1)	($1,280.8)	($1,472.8)	($1,604.3)	($1,720.2)	($1,766.1)	($1,910.6)

Gross Profit	$2,690.6	$2,721.8	$3,356.1	$3,927.7	$4,535.0	$5,026.7	$5,437.8

General & Administrative	($1,428.6)	($1,300.8)	($1,497.0)	($1,631.9)	($1,845.3)	($2,003.9)	($2,167.8)

R&D	($865.3)	($840.5)	($1,014.1)	($1,161.7)	($1,313.6)	($1,426.5)	($1,543.2)

Service and R&D Revenues	$438.9	$400.3	$482.9	$553.2	$625.5	$679.3	$734.8

EBITDA	$835.6	$980.6	$1,328.0	$1,687.2	$2,001.7	$2,275.6	$2,461.7

Depreciation & Amortization	($266.3)	($280.2)	($338.0)	($387.2)	($437.9)	($475.5)	($514.4)

Other Expenses	($65.6)	($200.1)	($48.3)	($55.3)	($62.6)	$0.0	$0.0

Operating Income (EBIT)	$503.7	$500.3	$941.6	$1,244.7	$1,501.2	$1,800.1	$1,947.3
% EBIT Margin	$0.1	$0.1	$0.2	$0.2	$0.2	$0.3	$0.3

Taxes	($121.4)	($175.1)	($329.6)	($435.6)	($525.4)	($630.0)	($681.6)
% Tax rate	-22%	35%	35%	35%	35%	35%	35%

NOPAT (Net Op Profit After Tax)	$382.3	$325.2	$612.1	$809.0	$975.8	$1,170.1	$1,265.8

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