Genzyme and Relational Investors
1. What is the business model for Genzyme? What is Termeer’s goal for the company going forward?
Genzyme’s business model is the production of drugs for the treatment of an uncommon genetic disorder. The drug targeted a small portion of the population because it only affects a small fraction of individuals. Genzyme’s main focus was to develop a treatment for patients with LSD (lysosomal storage disorder) (Eades, Matos, and Green, 2). To offer treatment at zero cost to those suffering from a genetic disorder in underdeveloped countries, the company carried out philanthropy through collaboration with Project HOPE. Genzyme also did not use cash payments on their stock shares. Raising finances via offerings from the public enabled the company to withstand the development and research high cost and stand the long procedures needed in order to get a new medicine to market. The main objective of Termeer for the development of the firm is the creation of solutions for common disorders by spreading out the finances of Genzyme into various portions such as renal and cardiometabolic, genetic diseases, hematologic oncology, and biosurgery.
2. What is the business model for Relational Investors (RI)?
The business model for Rational Investors is concentrating on profit-making. The investors share out finances to make sure that the capital is spent on the investment that has the highest expected returns. Whitworth claimed that Genzyme company should return finances to shareholders rather than engage in further acquisition to gain acceptable returns. He argued that Genzyme’s share price was selling below its original value since, while it was making profits from the genetic disease division, the newly formed divisions were not producing expected profits (Eades, Matos, and Green, 4). In Whitworth’s viewpoint, the investors must concentrate on efficiency and hand out their money to investments that will produce the highest profit. Furthermore, Whitworth has a habit of replacing the CEO of companies that do not meet his performance expectations and turns their direction into what seems more profitable.
3. Why did RI target Genzyme?
Rational Investors saw the bright future of Genzyme company. They knew the profit the company could have made through share selling. Because the main objective of the investors is to allocate their capitals to the firms with the highest expected returns, Genzyme company was targeted due to its high expected profits (Eades, Matos, and Green, 5). Furthermore, the firm was making great profits from selling drugs and from the partnership with other organizations.
4. Analyze each of the four demands made by RI. Put yourself in Termeer’s position and decide whether to fight some, all, or none of the proposals.
One of the demands made by Whitworth is to improve decisions involving capital allocation. The RI demanded the company to get into investments that will give the company more returns, such as share purchase programs. The purchase of shares will earn the company more profits, which means the investors will get more income. Another demand was the implementation of a dividend or a share buyback program (Eades, Matos, and Green, 4). By executing dividend programs, more buyers will be attracted to buying the company’s shares, therefore, increasing overall profit. The third demand of the RI was the Improvement of the board’s composition by increasing members with financial expertise. The members will give proper decisions on how to invest. They analyze the market and foresee the right product to invest in and which has the highest profit. The last demand is to compensate executives depending on how they perform. Compensation boosts the morale of an individual, which improves their performance. Termeer should fight some of the RI’s demands, such as the implementation of share buyback and dividend programs and compensation of executives on performance metrics. The focus of the Genzyme company is to survive and develop. Giving the buyers and executives incentives will boost their morale and performance but also will reduce the company’s profit.
5. Do some internet research to determine what happened to Genzyme within two years after the case.
Eighteen months after 2009, Genzyme company experienced several challenges. Termeer was forced to introduce Whitworth to the company’s board and made him the chair of the capital allocation committee. Several businesses were sold, and acquisition stopped (Eades, Matos, and Green, 8). The board announced a dividend program costing two billion dollars. The profits and revenue of Genzyme were impaired in turn since there was drug production shortage.
Works Cited
Eades, Kenneth M., Pedro Matos, and Rick Green. “Genzyme and Relational Investors: Science and Business Collide?.” Darden Business Publishing Cases (2017).
