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Genzyme fends off looming proxy fight

Two director spots granted to billionaire’s nominees

Activist shareholder Carl C. Icahn has completed deals with two big Cambridge biotechnology companies — Biogen Idec and Genzyme. Activist shareholder Carl C. Icahn has completed deals with two big Cambridge biotechnology companies — Biogen Idec and Genzyme. (Jeremy Bales/Bloomberg News/File 2008)
By Robert Weisman
Globe Staff / June 10, 2010

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Heading off a proxy battle set to be waged at Genzyme Corp.’s annual shareholders meeting next week, the Cambridge biotechnology company has struck a deal with activist shareholder Carl C. Icahn that gives him two seats on Genzyme’s board.

The arrangement, disclosed yesterday, will add to the board Icahn nominee Steven Burakoff, director of the Tisch Cancer Institute at Mount Sinai Medical Center in New York, and Eric Ende, a former Merrill Lynch & Co. biotechnology analyst who has worked with Icahn. In exchange, Icahn agreed to withdraw his slate of four candidates, including himself, and support management board nominees.

Genzyme officials said the truce with Icahn will allow them to focus on a campaign to strengthen the company. “This is a new beginning,’’ Genzyme chief executive Henri Termeer said yesterday. Termeer had been targeted by Icahn’s appeals to oust the “old guard.’’

“We have a settlement, not a winner and a loser in a fight,’’ Termeer said. “This is a manageable picture now. It takes away all of the risks of what might have happened next week.’’

The addition of the Icahn-backed directors will boost the number of Genzyme board members from 10 to 13.

Genzyme on Monday nominated Dennis Fenton, a former executive vice president at Amgen Inc., as a director. He is allied with director Ralph Whitworth, founder and principal at Relational Investors LLC in San Diego, another shareholder activist who earlier this year struck an agreement to join the board and support Termeer’s nominees.

Icahn, who owned 4.9 percent of Genzyme shares as of last month, is the company’s largest single shareholder. His record of pressuring management to boost stock prices at the businesses he invests in has given him considerable clout with institutional investors, which are the largest shareholders at most public companies.

After an investor advisory firm, Glass Lewis & Co., recommended last week that shareholders vote for one of the four candidates Icahn nominated for Genzyme’s board, Termeer said he concluded it would be best to reach an accommodation with Icahn. When Icahn representatives reached out to him late last week, Termeer said, he was ready to make a deal.

The agreement was concluded late Tuesday night in a phone call between Termeer and Icahn, according to Termeer.

Icahn didn’t return a phone call to his New York office seeking comment. Alexander Denner, the managing director of Icahn Capital who had been one of Icahn’s board nominees, said his investment group welcomed a Genzyme settlement that would boost shareholder value.

Termeer and other Genzyme executives had tried to make the case at dozens of face-to-face meetings with major investors that Denner and Richard C. Mulligan, another of Icahn’s candidates, would be subject to conflicts of interest because Genzyme is developing a drug to treat multiple sclerosis and the two already sit on the board of Biogen Idec Inc., another Cambridge company that is a leader in MS treatments.

Their argument seems to have swayed at least some investors, though Icahn’s lieutenants said it was not uncommon in the biotech industry for directors to sit on boards of companies with competing products.

“While we believe the conflict is not material, we, of course, were open to a settlement with Genzyme’’ that gives Icahn two board seats, said Denner, who manages Icahn’s biotech portfolio.

Icahn, in regulatory filings, criticized Genzyme management for what he said was a complacent response to a series of manufacturing problems, including a virus, at the company’s Allston Landing production plant. He suggested shareholders should consider replacing Termeer, who has run Genzyme for 27 years.

In their meetings with investors, company officials defended Termeer’s stewardship and pointed to steps Genzyme has taken to resolve its problems and increase the company’s stock price. They include hiring senior executives from top biopharmaceutical companies to strengthen its manufacturing, regulatory, and clinical operations; buying back $2 billion worth of stock; and agreeing to sell noncore businesses.

Genzyme shares fell 65 cents, or 1.3 percent, to $47.16 yesterday as investors digested news of the deal with Icahn. The deal means shareholders won’t have to choose between rival slates of candidates and decide whether to replace multiple directors, including Termeer.

While most big-block shareholders had not disclosed how they might vote, momentum seemed to be moving toward Termeer in recent days. On Monday, institutional stockowner Matrix Asset Advisors, which had earlier called for Termeer’s removal, did an about-face, saying Termeer should retain his role as chief executive.

“We had significant concerns,’’ said Matrix chief investment officer David Katz, who urged the company to accept at least one Icahn director. “But based on the actions they’ve taken since April, we’re much more comfortable. Our worst fears weren’t realized.’’

Robert Weisman can be reached at weisman@globe.com.