[基础分析] At Genzyme, a Long View

何鸿燊

Published: January 17, 2010
Jeff Zelevansky/Reuters

Genzyme, a $14 billion biotechnology company, is getting a much-needed shake-up. Relational Investors, an investor in the company, is doing it by, at least for the moment, backing its management.

Ralph Whitworth is a founder of Relational Investors, which owns a 4 percent stake of Genzyme, the biotech company.

But Carl C. Icahn, the billionaire with a history of forcing pharmaceutical companies into auctions, is hovering in the background. A sale might book a quick gain. However, a smaller, more focused Genzyme might be the better outcome for investors.

Genzyme’s missteps include manufacturing problems, overconfident projections on governmental approvals and shortages of its biggest drugs. Its market value has dropped by a third over the last two years. So it’s a natural target for activist investors like Mr. Icahn and Ralph V. Whitworth, a founder of Relational Investors.

Relational, which owns 4 percent of Genzyme, avoided the risks and costs associated with a proxy fight by reaching a deal this month with the board that backs management until November, at which point the investment firm can demand two board seats. Meanwhile, Mr. Icahn has built a 1 percent stake, raising expectations that he might try to push the company into a sale, as he did in the case of MedImmune and ImClone.

That would leave investors potentially facing a choice between pushing for a quick auction, or trying to work through Genzyme’s problems. In a sale, Genzyme might generate a 40 percent premium to its current price, which was the average fetched in similar biotech deals of this size.

But the alternative may be more compelling. The four other big revenue-producing biotechs (Amgen, Gilead, Celgene and Biogen Idec) are valued at five times 2010 sales, compared with 2.6 times for Genzyme. Closing this gap would generate an 80 percent increase in its stock price — possibly twice as much upside as in the sale option.

Of course, Genzyme’s efforts to fix itself, like hiring new production managers, haven’t been sufficient to meet this lofty goal. It has repeatedly plowed profits from its treatments for genetic diseases into capital-destructive activities.

The company’s kidney, diagnostic and surgery lines, as well as other noncore efforts, have squandered more than $1 billion over the company’s history, according to Citigroup research. These have few synergies with its genetic disease business. Selling them would free management to focus on niche treatments for inherited diseases.

Mr. Whitworth has suggested as much — a strategy that, along with fixing Genzyme’s manufacturing woes, will take time. That’s why a sale of the whole company might sound appealing. But with the potential return double that of a quick flip, investors would be better off taking the longer-term view of Genzyme’s future.

Cosmetics Worth It

Makeup lovers tend to splurge when a better product comes along. That seems to be the thinking behind Shiseido’s $1.7 billion takeover of Bare Escentuals, announced on Friday.

The deal allows Shiseido, Japan’s largest cosmetics brand, to expand in the United States, where Bare Escentuals already has a loyal following. At first blush, the company doesn’t look to be coming cheaply. But the transaction is attractive for Shiseido investors.

Shiseido will tender $18.20 a share in cash for Bare Escentuals, a niche mineral-based cosmetics company. At a premium of 43 percent to Bare Escentuals’ closing price on Thursday, that sounds expensive, especially after a huge rally in its share price. Bare Escentuals’ stock fell as low as $2.45 a share in March.

But at 9.6 times 2010 consensus earnings before interest, tax, depreciation and amortization, it’s actually in line with Shiseido’s own valuation. Moreover, the two business lines could blend well. Both companies are strong in research and development, and the deal offers regional diversification and new sales platforms for both.

The purchase would be the largest for Shiseido, and a way for the established Japanese brand to move away from its aging, declining-growth home market, where in November, the company’s domestic sales fell 9 percent on a year-over-year basis.

Shiseido hopes to profit from Bare Escentuals’ model of selling directly to consumers on television and in its own retail stores. That, combined with its chief executive, Leslie Blodgett, serving as the company’s public face, allowed Bare Escentuals’ sales to increase 40 percent from 2006 to 2008, and achieve operating margins of more than 30 percent.

That contrasts with Shiseido’s own margin of 7.2 percent in its latest fiscal year, so it’s easy to see how the merger will be beneficial for Shisedo’s bottom line.

ROBERT CYRAN and ALIZA ROSENBAUM