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Genzyme’s chief a master of survival

Termeer’s tactics thwart activist Icahn’s challenge

Henri Termeer kept his focus. Henri Termeer kept his focus.
By Robert Weisman
Globe Staff / June 15, 2010

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CAMBRIDGE — He built a global company with 12,500 employees, designed a business model around expensive drugs to treat rare diseases, and, through success and longevity, became the most recognized name in the biotechnology industry.

Now, in his 27th year at the helm of Genzyme Corp., the state’s largest biotech firm, chief executive Henri A. Termeer can tack another title to his storied resume: survivor. He is the rare chief executive who weathered a frontal assault by billionaire corporate raider Carl C. Icahn.

The high-stakes drama began a year ago this week, when a virus was found in a bioreactor at Genzyme’s Allston manufacturing plant, setting in motion a series of setbacks that brought Termeer, 64, to the low point of his career. Genzyme had to temporarily suspend production of key drugs that treat genetic disorders, ration doses to patients, and placate regulators who needed to be convinced the plant was clean.

During the tumult, the company’s stock tum bled. In a Feb. 19 phone call, Icahn put Termeer on notice. He was buying up Genyzme shares and would seek four seats, including one for himself, on the board in the spring. With that kind of power, he could agitate to sell or split up the company — and remove Termeer.

The prognosis for the chief executive’s survival seemed grim. Yet as Genzyme prepares for its annual shareholders meeting tomorrow, the Dutch-born Termeer, though chastened, remains in control.

Last week, he struck a deal that will expand the board from 10 to 13 members, handing two seats to Icahn. In exchange, Icahn — who did not return phone calls seeking comment for this story — agreed to withdraw his slate of candidates and back Termeer’s choices for the other seats. The agreement leaves Termeer in a position to end his tenure on a high note.

In beating back Icahn’s challenge, while maneuvering to pull Genzyme out of its tailspin, Termeer created a kind of playbook for other chief executives threatened with proxy battles. Among his tactics: aggressively wooing investors, drawing on a reservoir of local support, and forging an alliance with another activist shareholder.

And all the while, he kept his focus on trying to fix Genzyme’s production problems — by huddling with patients, investors, and regulators, and working inside the company to install new manufacturing controls.

The way he handled the challenge “has every sign of being a case study,’’ said Harvard Business School professor Michael E. Porter, who has known Termeer since they served together as directors of software company Lotus Development. “There have been cases like this where there was management denial, but there was no denial with Henri.’’

Termeer had another advantage — the temperament to fend off a takeover specialist like Icahn, even if it meant accommodating some of his concerns to preserve the franchise. Throughout his career, Termeer has demonstrated adaptability, attention to detail, and a knack for cultivating personal relationships, according to those who know him. Such traits helped when Icahn came calling.

Colleagues at Genzyme’s headquarters in Kendall Square talk of the “Henri drive-by,’’ his tendency to pop into a office unannounced to ask about the status of work. Typically, he starts with an innocuous question, such as “All is well?’’ Employees know it’s a signal for a progress report.

To prepare for Icahn, Termeer closely watched the shrewd investor’s hard-edged campaign to gain influence at another local biotech, Biogen Idec Inc., last year. Icahn, based in New York, sought to install directors on the board of Biogen Idec over the objections of management, which he criticized as deaf to shareholders. The confrontation turned ugly, and it did not end well for top executives.

In interviews during the power struggle, Icahn’s lieutenants taunted Biogen Idec leaders’ complacency, but they declined to respond. And at last year’s shareholders meeting, the company was ill-prepared for Icahn’s show of strength — executives had to recess the session in an attempt to regroup and rebuff Icahn’s candidates for the board of directors. It was too late: He won two seats on Biogen Idec’s board. Soon after, chief executive James C. Mullen decided retirement — at the age of 51 — was his best option.

Termeer wanted Genzyme to avoid a similar fate. He had no interest in what he called “the risk of a circus’’ at this week’s annual meeting of Genzyme investors.

Even before Icahn sent his customary “fight deck’’ of slides to stockowners last month, suggesting they consider ousting Genzyme’s “old guard,’’ Termeer had begun his own road show, visiting dozens of pension and mutual fund managers and other major Genzyme investors in Boston and New York. He also talked by phone to others in Europe. The message was twofold: Genzyme was taking steps to fix its problems, and Icahn’s board candidates should be rejected because they were unqualified to run the company.

Termeer lobbied hard, trumpeting the senior executives he hired to overhaul manufacturing and regulatory affairs, unveiling a $2 billion stock buyback designed to increase the share price, and professing a willingness to sell off parts of the business that weren’t essential. He also contended that two of Icahn’s board nominees, Alexander Denner and Richard C. Mulligan, would face conflicts of interest because they sat on the board of Biogen Idec. Genzyme is developing a multiple sclerosis treatment that will compete with Biogen Idec’s MS drugs. That argument appeared to sway some institutional investors.

Matrix Asset Advisors, a New York investment management firm that had called for Termeer’s removal, changed its position after sitting down with him. “Icahn stepped up the heat, stepped up the pressure, but Genzyme responded,’’ said David Katz, the Matrix chief investment officer. “Based on all of the actions they’ve taken since April, we’re much more comfortable.’’

Termeer was also able to draw on the well of personal capital he had built up during decades in the Boston area, a hub of mutual fund managers and other large investors. At industry and community events and in newspaper opinion columns, his supporters warned of the dangers of putting short-term investors in charge of a company that engages in long-term development of drugs to treat rare diseases.

People would approach him at business functions and say, “Keep up the good fight.’’ When he spoke on an economy panel at the Associated Industries of Massachusetts annual meeting in Waltham last month, a businessman inquired, “How can we help you fight off the short-term profiteers?’’ Translation: Stop Icahn.

Many in the local business community feared that if Icahn was to win four seats and gain a strong foothold, he would push to break up or sell Genzyme — with a market value of more than $13 billion — just as he has done at out-of-state biotechs where he’s gained control.

“We’re trying to make Massachusetts competitive, and our advantage is in life sciences,’’ said New England Patriots owner Robert K. Kraft, who sits with Termeer on the board of the Federal Reserve Bank of Boston. “So we want to keep our companies independent. We’re lucky to have Henri here, and he’s earned the right to retire on his own terms.’’

To build investor support beyond the Boston area, Termeer reached out to activist shareholder Ralph Whitworth. They met at the JPMorgan Healthcare Conference in San Francisco last year after Whitworth’s company, Relational Investors LLC in San Diego, bought a large chunk of Genzyme shares.

Whitworth was a fount of ideas on everything from capital allocation to performance-based stock incentives. Rather than dismiss him as a meddler, Termeer listened carefully and introduced him to other Genzyme executives. Earlier this year, after the challenge from Icahn surfaced, Termeer offered Whitworth a seat on the Genzyme board. He ultimately emerged as Termeer’s leading defender on Wall Street, accompanying the Genzyme chief to meetings with investors.

How the new Genzyme board will fare, with candidates loyal to Icahn and Whitworth as well as incumbent directors, is a saga to be played out in the coming months. But Termeer will remain in the corner office in Kendall Square as Genzyme moves to regain its footing and bring a new crop of drugs to treat MS and other diseases to market.

“What we have is a very positive outcome,’’ Termeer said. “And we got to talk to all our shareholders. And that’s not a bad thing.’’

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