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Genzyme deal survived a culture clash

French drug giant’s takeover bid dragged on as CEOs under pressure battled over price

By Robert Weisman
Globe Staff / February 20, 2011

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CAMBRIDGE — The call couldn’t have come at a worse time.

Genzyme Corp. chief executive Henri A. Termeer was working to speed his company’s recovery from a costly manufacturing mishap. He was preparing for what was shaping up to be a contentious shareholders meeting. And a billionaire corporate raider was campaigning to get him booted from the corner office.

But there was no avoiding the caller from Paris that day last spring. Christopher A. Viehbacher, chief executive of French pharmaceutical giant Sanofi-Aventis SA, wanted to talk about a potential takeover.

“It was an awkward moment,’’ Termeer recalled. He tried to stall Viehbacher, asking, “Chris, why don’t you wait for a little bit?’’

So began a trans-Atlantic standoff that lasted nearly nine months. For long stretches, the two men talked mostly through advisers or the media as they haggled over Sanofi’s unsolicited bid for the largest and most storied biotechnology company in Massachusetts. It ended with last week’s $20.1 billion agreement to sell Genzyme to Sanofi.

The negotiations, which ultimately turned friendly, pitted two strong-willed executives against each other. Termeer and Viehbacher are the odd couple of the global drug industry: an avuncular Dutch entrepreneur who built a leading US biotech business, and a laser-focused Canadian-German accountant who is scrambling to rejuvenate a European drug maker dogged by falling sales.

For Termeer, 64 and nearing retirement, the prospect of letting go of Genzyme was painful, even though he would personally prosper from the sale. During a quarter-century at its helm, he had nurtured the company from its infancy with 21 workers in a modest office in Boston’s Chinatown into a multibillion-dollar corporation based in Cambridge’s Kendall Square with 10,000 employees around the world. In the process, he pioneered a bold business model built on developing expensive treatments for rare diseases.

There was no question — to Termeer, the takeover talks were about more than business.

Last summer, speaking to the Globe, he dismissed Viehbacher, 50, as a “younger executive’’ whose $18.5 billion offer for Genzyme failed to appreciate that “this is not a fixer-upper; this is beachfront property.’’ Viehbacher, frustrated that Termeer refused to negotiate, suggested that the company had been poorly managed and was saddled with “a history of overpromising and underdelivering.’’

Their on-and-off bargaining persisted through much of the past year, riveting the business world and setting on edge Genzyme employees and Massachusetts officials. It was an extreme form of the power struggles between rival executives that often stir corporate deals, said Newton executive coach and consultant Lauren Mackler.

“CEOs invariably score very high on the aggressive-defensive style,’’ said Mackler, who administers executive behavioral tests. “Here you had two guys like that. They’re very smart and very competitive. They’re playing a game and trying to get the best deal. You have to cut through the personality agenda and cut to the chase.’’

Viehbacher is fond of saying, “I’m not a scientist, I’m a CPA.’’ Hired in December 2008 to turn around Sanofi, a sprawling conglomerate cobbled together from hundreds of smaller European businesses, his marching orders were straightforward: Cut costs and find new revenue to offset the drop in sales from drugs that were losing their patent protection and facing competition from generic versions.

Sanofi still had enough cash coming in, but the outlook was “flat and unexciting,’’ Viehbacher admitted. A strategic review in 2009 concluded that Sanofi — which had more sales in developing countries than North America — needed to scoop up a company that was selling big-profit drugs, preferably in the promising biotechnology market. It also called for stepping up collaborations with academic researchers at prestigious schools.

“If you were going to partner with the MITs or with the Harvards of this world . . . you have to be an attractive partner,’’ he said.

Genzyme, a leader in drugs based on proteins grown in living cells, quickly rose to the top of Sanofi’s list of takeover candidates. In May, Viehbacher called Termeer to let him know about his intentions.

“For Henri, it was probably a call out of the blue,’’ said Viehbacher, who proposed discussing “strategic options.’’ In plain language, that means a major investment or total buyout.

The pressure was on, and Termeer knew it. The previous summer, Genzyme had discovered a virus in a bioreactor at its Allston Landing plant. Manufacturing was suspended while the plant was decontaminated, a tedious process that damaged the company’s reputation as much as its revenue. Genzyme was forced to ration two best-selling drugs, Cerezyme and Fabrazyme, which treat two diseases caused by enzyme deficiencies.

The company’s stock dropped; investors were angry.

“We were so in the middle of working our way through these manufacturing issues and getting back on our feet,’’ Termeer said.

But the Sanofi chief was in no mood to delay. Borrowing costs were cheap and several other big drugmakers — who might otherwise have fielded competing bids — were still digesting recent acquisitions they had made. Sanofi alone had Genzyme in its sights, but for how long?

There also was pressure from another source: shareholder activist Carl C. Icahn, who bought up Genzyme shares when they tumbled and was now working to get rid of Termeer and some of the company’s board members.

To placate the billionaire investor — known for his aggressive tactics and appetite for quick profits — Termeer struck a deal that gave Icahn two seats on the board, just before Genzyme’s annual shareholders meeting in June. He figured it was better to have the activist investor inside Genzyme’s tent as it dealt with Sanofi. The settlement bought Termeer time, but also created a powerful constituency on the board agitating for a sale that would reap a huge payout for stockowners — including Icahn.

By summer, word of Viehbacher’s interest in Genzyme had leaked. Neither party was pleased. “How much became public so early is extraordinary, and really regrettable,’’ Viehbacher said, “because we were essentially having to do things that people do behind closed doors in the open environment.’’

Sanofi went public with its bid Aug. 29, offering $18.5 billion. Viehbacher insisted the price was fair; Genzyme’s board swiftly turned it down. In a letter to the company’s suitor, Termeer called it “an opportunistic proposal . . . that dramatically undervalues our company.’’

Termeer was “stonewalling,’’ Viehbacher told stock analysts.

The divide remained wide for the next five weeks, and on Oct. 4 Sanofi launched its hostile tender offer — at the same $69 share price that Genzyme’s board had rebuffed. Genzyme investors let the offer expire twice, turning over only a small number of shares.

As the fall moved toward winter, Termeer began coming to terms with the inevitability of a sale. During a trade association meeting before Thanksgiving, he agreed to have lunch with Viehbacher at a Washington, D.C., hotel. The two men finally decided to put their business needs above personal differences.

“There was a lack of communication,’’ Termeer said. “Chris and I said to each other, ‘This is ridiculous.’ ’’

Over salads and jumbo chocolate chip cookies, the icy relationship warmed. They agreed that a sale made strategic sense, but differed on the price. Viehbacher and Termeer began to craft an innovative way to bridge the gap between the $69 a share Sanofi had offered and the $80 share price Genzyme wanted. It called for additional payments to stockholders after the purchase, based on future sales of a Genzyme multiple sclerosis treatment that has yet to be approved.

The compromise cleared the way for last week’s buyout agreement, the biggest sale of a Massachusetts company since Procter & Gamble snapped up Gillette Co. in 2005, and the largest acquisition anywhere in the world so far this year.

If Genzyme still had a chance of staying independent, it evaporated at the annual J.P. Morgan Healthcare Conference in San Francisco last month. That’s when Termeer was forced to reduce his 2011 profit projections — it was taking longer than expected to resume full shipments of Fabrazyme, one of the drugs affected by the Allston plant shutdown. The following week, speaking before the Greater Boston Chamber of Commerce, he sounded like a man resigned to giving up the company that had consumed much of his career.

“I thought about doing this [speech] in French,’’ he joked. But Termeer told the audience he would negotiate a deal to reward the people who put their money into Genzyme. “I’m an investor, too,’’ he said. Indeed, Termeer stands to cash out more than $300 million in the sale to Sanofi through his stock holdings and the terms of a change-of-control clause in his contract.

The deal was sealed at the end of last month at the World Economic Forum in Davos, Switzerland. “We took a walk up some big hill, and we were talking through it,’’ Termeer said. “And after two or three hours, we shook hands. We understood each other.’’

Viehbacher had sweetened the offer just enough. He said he told Termeer that if Genzyme drugs meet their sales and production targets and milestone payments kick in, “I’m going to bring a check personally to Henri along with his favorite wine.’’

Asked if he had a preferred vintage, Termeer responded with a tight-lipped smile, “I think this is a great time to upgrade.’’

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