Genzyme and Relational Investors: Science and Business Collide?

Abstract

The chairman and CEO of the Genzyme Corporation, one of the country's top five biotechnology firms, has received a phone call requesting a meeting with the cofounder and principal of a large activist investment fund that now has a 2.6% stake in his company. Before meeting with him, the CEO is aware that he needs a strategy for dealing with this “activist” investor with a track record of forcing out CEOs.

Excerpt

UVA-F-1660

Rev. Aug. 30, 2012

GENZYME AND RELATIONAL INVESTORS:

SCIENCE AND BUSINESS COLLIDE?

For Marblehead Neck, Massachusetts, it was an unusually warm morning in April 2009, so Henri Termeer decided to take a leisurely walk on the beach. Termeer had some serious issues to consider and often found that the fresh sea air and solitude did wonders for his thought process. For more than 20 years, Termeer had been the chairman and CEO of Genzyme Corporation, based in Cambridge, Massachusetts. Under his watch, Genzyme had grown from an entrepreneurial venture to one the country's top-five biotechnology firms (Exhibit 1 shows Genzyme's financial statements).

There were bumps along the way accompanying Termeer's achievements, and a recent event was one of them. The week before, Termeer had sat in a presentation by Ralph Whitworth, cofounder and principal of a large activist investment fund, Relational Investors (RI). Whitworth's company now had a 2.6% stake in Genzyme (Exhibit 2 shows Genzyme's top 10 shareholders). Whitworth had a history of engagements with the board of directors of numerous companies, and in several instances, the CEO had been forced to resign. In January, when RI had announced its initial 1% investment in Termeer's company, the two men had met for a meeting at the JP Morgan Healthcare Conference, and the discussion had been amicable. Whitworth and his team then traveled in April to Genzyme's headquarters and talked about Genzyme's core business, value creation, and the lack of transparency in some of the company's communications.

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Keywords: corporate finance, financial strategy, hedge fund