Week 1 Assignment 1: Genzyme and Relational Investors

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Individually (not as a group) prepare a case report consisting of a brief one or two paragraph response to each of the six questions. Limit your response to two pages, typed double-spaced, with 12-point font and one-inch margins. Write clearly, using proper grammar and punctuation. Then post a summary of your responses to the Discussion area, read the postings of other students, and respond to these postings. Your responses should address any issues raised in the responses of others that you feel are interesting or warrant clarification.

  1. Think about Genzyme and its business model. What does a biotech company do? How does it succeed? What is Genzyme’s business model and financial strategy? What does Henri Termeer want for the company going forward?
  2. What is the business model for Relational Investors? What are its keys to success?
  3. Why is Relational Investors targeting Genzyme? It has been noted that value is creating by investing in projects that return more than the cost of capital. Look at Exhibit 8 of the case. Suppose Genzyme’s cost of capital is 10%. Where is the company creating value? Where is it destroying value? What do you think should be done to improve?
  4. Evaluate Relational Investors’ criticisms and Genzyme’s defense for each of the following areas:
    • Capital allocation (investing in new projects)
    • Share repurchase
    • Board of director composition
    • Executive pay
  5. What do you think Genzyme should do about its financial strategy?
  6. Is there any way Termeer could have avoided this conflict with Whitworth, or was it unavoidable?

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