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Case Report 1 Case 4: Genzyme and Relational Investors: Science and Business Collide?

The goal of this case report is to explore Case 4, Genzyme and Relational Investors: Science and Business Collide? The case report requires you to complete a report in word and submit it to blackboard via turn-it-in. Your grade will depend on both quality and quantity. Each question (Summary, 1, 2, 3, 4, and 5) is worth 8.333 points each (total of 50 points).

For the case report, first summarize the case in your own words (about a paragraph) and second, answer the case questions.

Each of the answers should be complete and at least a few sentences long. Make sure to reference the case in your answers when necessary. If you quote external sources, provide a reference. Some of the questions ask for your opinion on a topic; make sure to provide sufficient evidence to help explain your answer.

Please be sure to complete the case report yourself and in your own words. Label your answers as Summary, 1, 2, 3, etc.

Part 1: Case Report Summary

Genzyme and Relational Investors: Science and Business Collide? (Abridged) It was April 2009, which meant that for more than 20 years, Termeer had been the chairman and CEO of Genzyme Corporation (Genzyme). Under his watch, Genzyme had grown from an entrepreneurial venture to one of the countrys top-five biotechnology firms (Exhibit 1). The previous week, Termeer had sat in a presentation by Ralph Whitworth, cofounder and principal of a large activist investment fund, Relational Investors (RI)·RI now had a 2.6% stake! in Genzyme (Exhibit 2). 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 Termeers company, the two men had met, and the discussion had been amicable. Whitworth and his team then traveled in April to Genzymes headquarters and talked about Genzymes core business, value creation, and the lack of transparency in some of the companys communications. Termeer was proud of his companys accomplishments, shown by the number of people with rare diseases who had been successfully treated with Genzyme products. He was also pleased with the long-term growth in the price of Genzyme stock, which had easily outperformed the market over the last several years (Exhibit 3) In fact, the company had just posted record revenues of $4.6 billion for 2008. Recently, however, he had received an official warning letter from the U.S. Food and Drug Administration (FDA) regarding manufacturing issues at one of the Genzyme facilities, and news on the impending health care reform bill had hit companies in the health care sector hard. Genzymes stock price, which had declined by 21% over five trading days, had yet to recover Termeer was in the middle of preparing for the shareholders annual meeting scheduled for May 21. He wondered if RI was really about relationship building and that perhaps Whitworth genuinely wanted to help Genzyme increase its performance. Or could there be other corporate activists or hedge funds monitoring his company and looking to set its corporate policy? In any case, Termeer knew that it was important to react appropriately to Whitworth and establish a strategy of how to handle such activist investors. Relational Investors Form 13F, March 31, 2009


Part 2: Case Report Questions

1. What is the business model for Genzyme? What does Termeer want for his company going forward?

2. What is the business model for Relational Investors?

3. Should Termeer fight Whitworth, or can he manage him by agreeing to some of Whitworth’s demands but avoid giving into demands that might compromise the core mission of Genzyme?

4. Why is Whitworth arguing that Genzyme needs to implement a share repurchase program? What problem would a share repurchase solve?

5. Do you think there is any way that Termeer could have avoided this conflict with Whitworth, or was it unavoidable?

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