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Genzyme would sell if price is right

More bidders could emerge

By Robert Weisman
Globe Staff / September 1, 2010

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Henri A. Termeer, the battle-scarred chief executive of Genzyme Corp., acknowledged for the first time yesterday that he is open to selling the Cambridge biotechnology company, but not for the $69-a-share price offered by France’s Sanofi-Aventis SA.

“This is not a fixer-upper, this is beachfront property,’’ Termeer said in an interview with the Globe. They were his first public comments since Sanofi unveiled its $18.5 billion bid for Genzyme on Sunday.

Termeer, 64, has spent the past year struggling with Genzyme’s supply shortages for two key drugs and fending off an attempt to oust him from the company’s board. Though he has said frequently that he’d like to see Genzyme stay independent, Termeer conceded yesterday that he has a duty to other shareholders to consider takeover proposals.

He also said he expects the standoff with the company’s Paris-based suitor to last for months and hinted that rival bidders could emerge, noting that larger drug companies have in the past shown interest in buying Genzyme.

“I can’t see what’s happening in other boardrooms,’’ Termeer said. “But I can imagine, if history is a guide, people are trying to understand the value of Genzyme and what the strategic context is.’’

Sanofi’s bid for Genzyme, the state’s biggest biotechnology company and a pillar of the industry, is the richest foreign acquisition bid for a US company so far this year, according to Standard & Poor’s in New York. Yet some investors have said it could sell at a higher price than what the French drug giant is offering, as much as $85 a share.

Termeer said he received the Sanofi overture early in the summer and worked with his board to craft a response as rumors of a deal swirled in the investment world. Now that Sanofi has gone public with its bid, Termeer said, he is free to explain why he believes it substantially undervalues Genzyme, a leading producer of expensive treatments for genetic disorders such as Fabry, Gaucher, and Pompe diseases.

In addition, the company is far into the development of potential blockbuster drugs that target multiple sclerosis and cholesterol, Termeer said. He said the company also has made significant headway in streamlining its operations and fixing manufacturing problems that caused viral contamination at its Allston Landing plant, forcing a temporary production shutdown that led to drug rationing for patients who depend on Genzyme treatments.

“It’s good to have this out in the open, to have the positions clearly defined,’’ he said. “I’m not surprised that Sanofi is trying to do a transaction in the least costly way. But the Genzyme board is very clear that we recognize its value. . . . We are saying that $69 is not a starting point for talking about selling the company.’’

Jack Cox, a spokesman at Sanofi’s US offices in Bridgewater, N.J., yesterday said the company’s proposal “provides Genzyme’s shareholders with a full and compelling premium that fully recognizes the company’s upside.’’ He noted that Genzyme shares were trading below $50 before word of a takeover attempt surfaced in late July.

“We continue to stand ready to engage in constructive conversation with the company and its board at any time,’’ Cox said.

Termeer declined to say what price would prompt him to open talks with Sanofi. Such a move would allow the French drug maker to inspect Genzyme’s financial books and facilities, including the Allston Landing plant. That facility will remain under federal oversight for the next seven to eight years, as stipulated in a consent decree struck between Genzyme and the Food and Drug Administration.

Sanofi’s investment bankers recognize a “fair value’’ offer for Genzyme will have to be much higher, Termeer suggested.

But some large investors have begun pressing Genzyme to enter into discussions with Sanofi about a sale.

In a letter to Genzyme’s board yesterday, David Katz, president of the New York investment firm Matrix Asset Advisors Inc., which owns 320,000 shares of Genzyme, wrote “it is incumbent on the board to earnestly consider all ways to enhance shareholder value, with the possible sale of the company being front and center.’’

Katz, in an interview, said Genzyme could fetch $75 a share if Sanofi is the only bidder, and $80 a share or higher if multiple bidders emerge. He said he was reassured by Termeer’s comments expressing a willingness to sell at the right price.

“We were fearful that the company was using a ‘just say no’ defense and hoping Sanofi would walk away,’’ Katz said. “We wanted to make sure Henri and the board understand they have a responsibility to maximize shareholder value and that they’re laser-focused on that. We’re saying that $69 should be enough to get them to the table.’’

Termeer, for his part, appeared in no hurry to make a deal, contending time is on Genzyme’s side and would allow the company to demonstrate a financial and manufacturing rebound.

He called Christopher A. Viehbacher, the Sanofi chief executive, “a competent younger executive who’s trying to change that company.’’ But he added that Sanofi is facing increasing competition from makers of generic drugs and needs a company like Genzyme to help it make up for lost revenue while diversifying into the biotechnology arena.

Genzyme shares climbed 20 cents, or 0.3 percent, to $70.11 yesterday, as investors anticipated a higher bid from Sanofi.

Termeer said he understands the pride employees and others in the Boston area take in Genzyme’s success and is sensitive to concerns about it falling into the hands of an outside company.

But he said he is confident that Sanofi or any other prospective buyer would maintain the core research, science, and manufacturing operations Genzyme has established in the region. He said other formerly independent biotechnology pioneers, such as Genetics Institute Inc. in Cambridge and Genentech Inc. of South San Francisco, Calif., remain vital parts of the companies that acquired them.

“I know the community has a concern about headquarters disappearing, and that is a concern,’’ Termeer said. “But this is an entrepreneurial area and other headquarters will arise. This company will continue its legacy, either as a stand-alone company or as part of another major company.’’

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