Odd bedfellows get together in the business world every day. But Henri Termeer and Ralph Whitworth are not a pair I would have ever predicted.
Termeer is the very confident chief executive of Genzyme Corp. who built his company into one of the state’s two most important biotechnology businesses with an unconventional strategy of pursuing treatments for patients with extremely rare but serious medical problems.
Whitworth is a tough-talking activist investor with plenty of money to back up his words. His firm, Relational Investors LLC, doesn’t win all the battles it takes on. But no one ignores Whitworth when he starts accumulating shares of a company with problems.
Genzyme is one of those companies with issues right now. Serious manufacturing problems have clobbered the Cambridge company’s once high-flying shares. Whitworth is one of Genzyme’s five largest investors and has remained a net buyer since last fall.
So what happened? They’ve fallen into each other’s arms. A “mutual cooperation’’ pact signed last week by Genzyme and Relational Investors sealed their bond.
Whitworth promised to back whatever nominees Genzyme proposes this year for the company’s board. He also agreed not to acquire more than 9.9 percent of Genzyme’s stock. In return, Whitworth will be offered a board seat if he requests one 10 months from now. That seems so civil[LOL].
As it turns out, Relational Investors and Genzyme have been talking for months. What prompted their deal? Surely it’s Carl Icahn, and there’s nothing civil about the threat he poses to executives running biotechnology companies. He looks for companies with problems and then squeezes managers hard.
Icahn is not a big Genzyme stockholder. He owns less than 1 percent of the company and barely makes it onto Genzyme’s list of top 50 stockholders. But Icahn acquired all his 1.5 million shares during the third quarter of last year, while the company struggled to solve its manufacturing problems. Keen corporate noses could smell the danger in that development.
Termeer needs no reminders about what can happen to biotech chief executives who stumble into Icahn’s sights. Biogen Idec Inc. chief Jim Mullen, who works only miles away, was making his retirement plans official just three days before the Termeer-Whitworth pact went public.
Mullen had been getting the rough treatment from Icahn for the past two years. The first time around, Biogen Idec’s management rebuffed an Icahn challenge for seats on the company’s board. But Mullen didn’t fare so well the second time around, last year, and Icahn ended up with two representatives among Biogen Idec’s directors. Now he’s ordering packing crates.
Termeer’s deal with Whitworth may seem like an ideal defense. Relational Investors is just the kind of shareholder Icahn would seek out as an ally if he chose to challenge the company’s managers.
But business alliances have a way of unraveling before long. In fact, Relational Investors was on the outside looking in when another famous local business pact was sealed and later fell apart.
Whitworth had been after the scalp of then-Sovereign Bancorp chief executive Jay Sidhu in 2006. He didn’t like the way the bank was being run or the person running it.
But Sidhu had a plan to shake free. He struck a deal to buy a bank in New Jersey for the absurdly inflated price of $3.6 billion, money Sovereign didn’t have. Sidhu got around that problem when he raised $2.4 billion in cash by selling shares of his company to Banco Santander Central Hispano. Santander ended up owning 19.8 percent of Sovereign in the deal.
This appeared to be a big win-win for Sidhu. He was atop a bigger banking company and also acquired a powerful new ally in the Sovereign stockholder base. Santander was in a position to stymie Whitworth.
It was a great plan on paper but not in real life. Before long, Santander appeared to agree with dissidents and Sidhu was out.
Mutual cooperation pacts also look good on paper. Genzyme’s deal with Relational Investors may give the company time to fix its problems and get the stock back on track. Who wouldn’t be happy then?
But business buddies aren’t forever. The history lesson in this story: The allies you sign pacts with could become something very different in the future.‹
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