4 Reasons Carl Icahn Won't Win His Genzyme Takeover Battle

Last Updated May 6, 2010 12:36 PM EDT

Billionaire activist investor Carl Icahn wants Genzyme (GENZ) CEO Henri Termeer removed from the board of his own company, according to an SEC filing, but he'll likely fail in that attempt. (The takeaway for managers is that when it comes to corporate strategy decisions, criticism -- which is all that Icahn is offering -- is not enough.) Here are four reasons why Icahn (pictured) won't win the Genzyme battle:
  1. Icahn has not put forward a viable alternative plan for Genzyme: Sure, the last year under Termeer has been a disaster, with the company's cell production lines infected, reducing production of its therapies for rare genetic diseases. Fixing this "broken" situation, as Icahn terms it, will be complicated. Very few CEOs have the required expertise to do this, and Termeer is on that shortlist. To his credit, Termeer has put forward a plan that is satisfyingly detailed in its admissions and proposals. By contrast, Icahn's proxy all but admits that he doesn't know what he's going to do if he wins his fight. It says:
    The Nominees are unable to fully formulate specific plans with respect to the Company as they are not privy to non-public information regarding Genzyme's manufacturing problems.
  2. Three of Icahn's four directors have conflicts of interest: An appearance of a conflict has pretty much the same result as an actual conflict -- no one trusts you. Three of Icahn's slate sit on the board of Biogen (BIIB), which markets competing blood cancer drugs. Icahn gives this explanation of why this conflict is "de minimus":
    ... the assumption made by the Icahn Parties, which they believe to be reasonable, [is] that sales of drugs by Genzyme and Biogen which might be considered as competing were de minimus, as defined with respect Section 8 of the Clayton Act, during 2009.
    Investors bet on the inherent value of the company, not on wooden interpretations of "Section 8 of the Clayton Act." Icahn -- who could have nominated anyone he liked -- has to do better in order to win this argument.
  3. The Icahn case revolves mostly around ImClone: The name of that cancer drug company, which Eli Lilly (LLY) bought for a premium in 2008, is mentioned 13 times in Icahn's latest filing. There's nothing wrong with tempting investors with the idea of selling the company to someone else, but the ImClone thing ignores what happened between then and now ...
  4. ... How's that Amylin (AMLN) thing working out? A year ago, Icahn got two directors on the board of Amylin. In that time, Amylin's revenues have sunk and it still hasn't made a profit. Worse, its key product -- Bydureon, a once-weekly version of the diabetes drug Byetta that is expected to be a blockbuster -- wasn't approved by the FDA. Sure, the stock went up -- but so did everyone else's over the period. You can measure Icahn's success at Amylin by the number of times he mentions it as a case example in his SEC filing: once.
Interestingly, neither side in the fight has said a word about the 800-pound gorilla in the room: The future of Campath as an MS drug. Campath appears to be a miracle worker on MS, but it's currently on the market for blood cancer -- at around one third of the price of competing MS drugs. Genzyme will eventually get its manufacturing problems behind it, so the long term question for investors is, Can the company find a way to get Campath approved for MS and increase its price without annoying patients and reimbursers? On that issue, both Icahn and Termeer are silent.

My prediction: A compromise will be reached. Termeer will give up the chairman's slot on the board (it's bad corporate governance for the CEO to hold that job anyway) and allow a couple of Icahn's men aboard.

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