The Proxy Fight at Genzyme: A Battle for the Future of the Company
In 2007, Genzyme Corporation was embroiled in a proxy fight with activist investor Carl Icahn. The fight was over the future of the company, with Icahn pushing for changes to the way Genzyme was run and calling for the sale of the company. Management, led by CEO Henri Termeer, resisted these calls, arguing that the company was doing well and that Icahn’s proposals would be detrimental to Genzyme’s long-term prospects.
The proxy fight became hostile, with both sides accusing the other of lying and manipulating the facts. In the end, management won the battle, with Icahn dropping his plans to take over the company. This essay will examine the battle for proxies at Genzyme and the strategies used by management to maintain their power. It will also assess the impact of the proxy fight on Genzyme.
2. The battle for proxies at Genzyme
The battle for proxies at Genzyme began in 2007 when Carl Icahn, an activist investor with a history of agitating for change at companies he invests in, bought a 3% stake in Genzyme. At the time, Genzyme was a biotechnology company specializing in treatments for rare genetic diseases. It was widely considered to be a well-run company, and its stock price had been steadily rising for years.
Icahn initially said that he was happy with how Genzyme was being run and had no plans to push for changes. However, this changed in 2008 when Genzyme ran into trouble with one of its key products, Myozyme. Myozyme is a treatment for Pompe’s disease, a rare and often fatal illness that causes muscle weakness and respiratory problems.
In 2008, the U.S. Food and Drug Administration (FDA) placed Myozyme under 5-year supervision due to concerns about its manufacturing process. This was a major setback for Genzyme, as Myozyme was one of its best-selling products. The FDA’s decision caused Genzyme’s stock price to drop sharply, and Icahn saw an opportunity to make changes at the company.
Icahn began buying more Genzyme shares and started agitating for change. He called for the sale of the company and criticized management’s handling of the Myozyme situation. In response, management sought to maintain their control over the company by persuasion and tactics designed to delay or prevent a change in control.
3. The strategies used by management to maintain their power
One of the first things management did to try and keep Icahn from taking over was to poison his reputation among other investors. They did this by leaking stories to the media about Icahn’s past hostile takeover attempts and painting him as an investor who only cared about making quick profits rather than long-term value creation.
Next, management sought to delay any potential proxy fight by movingGenzyme’s annual shareholder meeting from June to September 2008. This gave them more time to prepare for a fight and also made it harder for Icahn to gather support from other shareholders who might have been undecided about his proposals.
In addition, management also adopted a so-called “staggered board” structure, which made it harder for Icahn to replace the entire board of directors with his own nominees. Under a staggered board, only a portion of the directors are up for election in any given year. This meant that Icahn would have to win two years in a row in order to take control of the board.
Finally, management also put in place a “poison pill” defense, which would make it prohibitively expensive for Icahn to buy more than 50% of Genzyme’s shares. All of these strategies were designed to make it harder for Icahn to take over the company and give management more time to prepare for a proxy fight.
4. The impact of the proxy fight on Genzyme
The proxy fight between Icahn and management was a distraction for Genzyme at a time when it was already dealing with major problems. The FDA’s decision to place Myozyme under 5-year supervision was a major setback, and the company was also facing difficulties with another one of its products, Cerezyme. Cerezyme is a treatment for Gaucher’s disease, another rare and often fatal illness.
In 2009, Genzyme ran into manufacturing problems with Cerezyme, and patients were forced to ration their use of the drug. This led to patient protests and calls for Termeer to resign. The proxy fight with Icahn was another major distraction for management during this difficult time.
In the end, management prevailed in the proxy fight, but at a cost. The battle damaged Genzyme’s reputation with investors and led to calls for Termeer’s resignation. It also distracted management from addressing the serious problems the company was facing with its manufacturing processes.
The proxy fight at Genzyme was a battle over the future of the company. Management fought hard to maintain their power, adopting strategies designed to delay or prevent a change in control. In the end, they prevailed, but at a cost. The battle damaged Genzyme’s reputation and distracted management from addressing the company’s serious manufacturing problems.