(Bloomberg) -- After a year-long takeover battle for the owner of France’s best-selling painkiller, Sanofi’s decision to sell its over-the-counter business to a US buyout firm descended into mudslinging, public rebukes and political discord.
The French drugmaker’s sale of a controlling stake in its Opella unit to US financial juggernaut Clayton Dubilier & Rice for €16 billion ($17.3 billion) was sealed over the weekend. The decision brought an end to an unusually fierce campaign — fought in private and public — by Paris-based rival PAI Partners, which refused to accept it had lost and tried to upend the transaction, triggering a rigorous response from the other side.
The drama meant Europe’s biggest buyout this year was about more than just bragging rights. Sanofi’s decision triggered criticism across France’s fractured political landscape and even prompted President Emmanuel Macron’s pro-business party to voice concern. When some PAI advisers tried to use their political and media connections to disrupt the deal, others involved in the process likened it to a terre brûlée or scorched earth campaign, according to people with knowledge of the matter — harsh words for even the most hard-nosed dealmakers. Lobbying efforts included visits and calls to government officials and local politicians to stir up opposition, suggesting that the deal with a US firm threatened jobs and drug manufacturing in the country, the people said.
“I have seen a lot of equally bloody and ferocious bidding wars, but this is the one where the fury was the most visible to the outside world,” said Jean-Baptiste Wautier, who was a private equity investor for more than two decades and now lectures at French university Sciences Po. “I can’t recall anything comparable — it is the visibility of this deal combined with the political tension which is unprecedented.”
CD&R was forced to publicly deny suggestions that it had tipped the race in its favor by promising exorbitant pay packages to Opella management. Sanofi also rejected the idea that Gilles Schnepp — one of the US buyout firm’s operating advisers who has been a Sanofi board member since 2020 — presented a conflict of interest. Schnepp recused himself from the beginning and didn’t attend any related meetings, Sanofi said in a statement.
At one point, Sanofi’s exasperation was such that it discussed freezing out some PAI advisers on future deals, according to people with knowledge of the matter. CD&R finally won the battle on Monday after agreeing to protect local jobs, investment and production. It also allowed state-owned investment firm Bpifrance to buy a stake of up to 2% in Opella and take a seat on its board.
The transaction gives CD&R control of a cash-generating business that can serve as a platform for further expansion, capping a years-long search for a blockbuster European acquisition. For PAI, it’s a lost opportunity to seal a franchise-defining deal that would have ranked as its largest ever.
The rare public feud between suitors offers a glimpse into the often opaque world of dealmaking, where firms and their financial, legal and communication advisers use their clout and connections to bring home a marquee multibillion-euro transaction — as well as the fees and reputational boost that come with it. The transaction also pitted Centerview Partners LLC rainmaker Matthieu Pigasse — the key adviser to PAI — against CD&R’s advisers at Lazard Inc., whose French investment banking operations are led by his former colleague Jean-Louis Girodolle. The way it played out showcases how far losing bidders will go to try to salvage a deal.
This story is based on interviews with more than a dozen people at the company, buyout firms and their advisers, who asked not to be identified because of the sensitive nature of the negotiations. Representatives for Sanofi, CD&R and PAI declined to comment on specifics of the bidding process.
Rising Valuations
When Sanofi Chief Executive Officer Paul Hudson announced plans last year to split off the division, he was following in the wake of other large pharmaceutical companies that have spun off consumer health units including GSK Plc, Novartis AG, Pfizer Inc. and Johnson & Johnson, as drugmakers target next-generation therapies.
The French company initially preferred a listing for the unit. But as talks progressed with some of the largest buyout funds, it became clear to the pharma company that a potential sale of the business — codenamed Platinum by Sanofi bosses — was viable.
Fast forward to early October of this year, Sanofi had whittled down the buyer list to CD&R and PAI after other suitors balked at rising valuations and potential political and litigation risks. After multiple requests for revised bids from the two remaining contenders that saw them go neck and neck on price, the final decision was made at a board meeting held in secrecy on Oct. 10.
Sanofi Chairman Frederic Oudea informed a small circle about the decision including David Novak, co-president of CD&R, and Frederic Stevenin, managing partner at PAI, according to people with knowledge of the matter.
Meanwhile an army of financial, legal and communication advisers were left waiting for white smoke to emerge from the board meeting. CD&R worked with Lazard and Citigroup Inc., while PAI had Centerview and JPMorgan Chase & Co. in its corner. Even some in the Sanofi camp — which includes Rothschild & Co., Bank of America Corp., BNP Paribas SA, Goldman Sachs Group Inc. and Morgan Stanley — didn’t know a decision had been made.
Then, at 10:05 p.m. local time, Bloomberg News reported that CD&R was nearing a deal. One CD&R adviser became teary-eyed with joy when told by a journalist that his horse had won. On the other side, some in the PAI camp were incredulous that their bid had failed when they saw the breaking news. The French drugmaker formally announced CD&R as its chosen partner on the morning of Friday, Oct. 11 before markets opened in Paris.
True Drama
The true drama was only just beginning. Behind the scenes, frustration in the PAI camp mounted, eventually translating into an 11th hour bid to reverse the Sanofi decision. That was met with an equally forceful rearguard action by the pharma group to justify its decision, including an interview by Oudea in French paper Les Echos defending the deal.
Given that politicians had already raised concerns earlier in the sale process, it didn’t take long to stir the hornet’s nest. Opella’s paracetamol-based painkiller Doliprane is in the medicine cabinet of almost every French home, as ubiquitous as Tylenol in the US. The pharma group also employs about 19,000 people in France, prompting both suitors to work hard to make their case to the government.
Sanofi’s initial choice of the Americans sparked political handwringing over whether the deal threatened French sovereignty over medicine and took some of the gloss off the transaction for a government keen to attract overseas investment. More than 60 parliamentarians, led by Charles Rodwell, a member of President Macron’s pro-business party, published a letter on Oct. 11 saying the sale constituted a risk to national security and called on the government to secure French production and supply of Doliprane.
Some politicians went further. The president of Marine Le Pen’s far-right National Rally party, Jordan Bardella, attacked the deal by saying “France continues to be sold by the slice.”
The head of the Socialist Party, Olivier Faure, told France Inter radio on Oct. 13 that the Opella sale was a “scandal” and raised the prospect of a conflicts in case of a drug shortage: “you know very well that the American government can ask for priority to be given to US citizens.” Faure urged Macron to “make sure Doliprane remains French” rather than worrying about Emily staying in Paris, a reference to the president’s desire to keep the popular Netflix heroine from decamping to Italy.
It isn’t the first time that a French deal has become mired in politics. And Macron — often forced to navigate between his flagship ambition to make France a business haven and growing populist calls to protect industrial sovereignty — hasn’t been shy about intervening in foreign acquisitions.
His government derailed a merger between French automaker Renault SA and Italy’s Fiat SpA in 2019, though it warmed up to a similar deal announced later that year between Fiat and PSA Group. It then halted the takeover of French grocery chain Carrefour SA by Canada’s Alimentation Couche-Tard Inc. in 2021. The sale of French generic drugmaker Biogaran to international investors fell through this summer amid political uncertainty.
The stakes were high enough for the Macron government that it revealed on Oct. 14 it was weighing options including taking a public stake in Sanofi’s consumer health business to protect domestic interests. As the political drumbeat increased, CD&R began hashing out a package of guarantees for local jobs and plants to safeguard Opella’s operations in France with the goal of quickly sealing the deal.
With the window of opportunity for PAI beginning to close, the French private equity firm made its boldest move yet, submitting an unsolicited and improved offer for Opella, which came to light in an Oct. 17 report in Le Figaro newspaper. The buyout firm raised its bid by about €200 million, which it pitched as a response to public and political demands. PAI pledged to keep the operation’s headquarters and other key sites in France, and said it would protect jobs by investing at least €60 million over five years.
The move triggered a thinly-veiled rebuke from Sanofi, which until then had avoided any public criticism. It said in an emailed statement that it was “surprising that a ‘revised offer’” was made public through the media “outside the timeframe and the governance process that framed the decision.”
Behind the scenes there was mounting anger. Some people close to Sanofi and CD&R perceived the unsolicited bid as an aggressive move. Others questioned the validity of PAI’s increased offer, querying the financing and quipping that the additional investment was only enough to keep the lights on at one of its factories.
At that stage, some in the PAI camp were starting to realize the standalone bid wasn’t gaining traction and it might be more realistic to hope for a minority stake alongside CD&R, people with knowledge of the matter said. But their bridges with Sanofi had largely been burned, as illustrated by the drugmaker’s terse statement.
Late on Sunday, the French government secured commitments on local employment and future funding, and state-owned investment firm Bpifrance agreed to buy a stake in the OTC arm. Finance Minister Antoine Armand announced the deal on X saying the requirements on employment, production and investment for essential medicines in the country “will be respected.” The next day, at a hastily organized press conference, he said the agreement carries tens of millions of euros in potential fines for violating the terms.
@antoine_armand et @FerracciMarc sur les garanties obtenues par l’État dans le projet de cession de capital de l’entreprise Opella, filiale du groupe Sanofi. https://t.co/4AklISH9DN
The government stake — while not ideal for a private equity transaction — at least addressed the main political opposition. Despite its herculean efforts with the post-decision sweetener, PAI was cut out entirely.
French Roots
For the losing bidder, the potential repercussions go beyond a single deal. PAI could have used its biggest ever acquisition as the best proof yet that it had become a formidable competitor to blue-chip investment firms like KKR & Co., Blackstone Inc. and CVC Capital Partners Plc. It would have also served as a fresh example of its carveout abilities and a useful marketing tool to help PAI raise more money than its last successful fund amidst a tough private equity environment.
But one Sanofi adviser said PAI had become complacent, assuming that its French roots would win the day. Others had sought to discredit it by saying that the PAI bid wasn’t truly French but a foreign consortium, given its financial backing from the Abu Dhabi Investment Authority and Singapore sovereign wealth fund GIC Pte.
CD&R — which dwarfs PAI’s roughly €29 billion of assets — has experience in buying corporate carveouts and building them up as independent businesses. The firm, which has been hunting for major acquisitions after raising a record $26 billion buyout fund last year, was drawn to the Sanofi consumer health-care business due to the stable, cash-generative nature of the industry. Despite the required guarantees with the French state, the new owner still sees significant growth potential. The Sanofi deal could also help CD&R overcome the sting from its 2021 takeover of UK grocer Wm Morrison Supermarkets Plc, when underwriting banks ended up saddled with billions of euros in debt they struggled to get rid of.
So why did Sanofi choose CD&R’s offer over the arguably safer choice of a French solution? In addition to almost equal offers before the deadline, the Americans promised more firepower to help the business expand and make acquisitions in the US, already Opella’s biggest market accounting for over 20% of revenue, people with knowledge of the matter said. CD&R’s experience in the French market, thanks to its ownership of home furnishings retailer Conforama, was an added advantage.
In the end, the Opella sale may be remembered more for the political uproar and dogged fight than its huge size. For many advisers involved, it was another example of a bidder pulling out all the stops to rescue a deal, which some media have labeled the “sore loser syndrome.” For others, it conjured up memories from two decades ago when France declared yogurt a nationally strategic asset in the face of PepsiCo Inc.’s unwelcome interest in Danone SA.
“This mess has created an important precedent in France, because people will remember it when the next big deal happens,” Sciences Po’s Wautier said. “It’s not good for the country.”
--With assistance from Ashleigh Furlong and Ruth David.
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