GENZ - WSJ
Off-Track
AHEAD OF THE TAPE By JESSE EISINGER
The biotech company Genzyme has finally decided to clean up its long-criticized tracking-stock structure. In doing so, it's making one wonder if a recidivist corporate-governance malefactor can ever truly change its stripes.
On Thursday, the company announced it would buy back and eliminate the shares of two current divisions traded with trackers, Genzyme Biosurgery and Genzyme Molecular Oncology.
The terms are clearly unfair to the shareholders of Biosurgery, which sells an osteoarthritis product called Synvisc that should do about $120 million in sales this year at gross margin estimated at 70%. Genzyme's offer is currently valued at about $82 million in Genzyme stock.
It's tempting to tell the tracking stock shareholders they have only themselves to blame. Any tracking-stock holder is asking for trouble, the more so if Genzyme's involved. Management has long had impenetrable accounting, indulging regularly in gimmicks that serve a longtime shareholder ill.
Biosurgery is vulnerable: It has the same board as Genzyme General and no sell-side following on Wall Street. Genzyme General has strung shareholders along with repeated promises that Biosurgery would soon be profitable. But it steadily lost prodigious amounts, mainly because the parent company was managing it so poorly, saddling it with inordinate R&D and selling expenses. It had a hefty amount of debt.
Moreover, the stock was rebounding when Genzyme invoked its business charter to purchase the tracker shares for a 30% premium over an average of recent trading days. Even with the premium, the deal was a "take-under" from Biosurgery's value just before the deal was announced.
None of this was lost on Biosurgery holders. In a conference call with the company Thursday, John Lewis, president of Pennsylvania money management firm Gardner-Lewis, let loose a long and justified diatribe. At one point, when Genzyme CEO Henri Termeer claimed "this combination makes the most sense," he shot back, "For Genzyme General, you're damn right it does! How about for me? How about for my clients?"
Do current shareholders have any recourse? Mr. Lewis raises a compelling point: Did Genzyme have positive, material, nonpublic information while formulating its plan? While Genzyme General announced the tracking-stock consolidation on Thursday, the period to determine the price was a 20-day trading period ending April 23.
So the price takes into account only six days of trading after its most recent strong quarterly earnings. Indeed, Biosurgery stock leapt almost 80% since the earnings. Genzyme also said it would try to sell off the cardiothoracic unit of Biosurgery, a money-losing business. Also, the company talked about a new positive Synvisc study. All three things would boost the value of Biosurgery.
Though Genzyme's stock rallied more than 5% Friday on the news, that optimism might be misplaced. After all, if Mr. Termeer will do that to the shareholders of his tracking stock, the logical conclusion is that he just might it to you, too, some point down the line.
Do Biosurgery holders have only themselves to blame? Send comments to tape@wsj.com and check Mondays for selected letters in Tape Exchange at wsj.com/tape
Updated May 12, 2003
online.wsj.com |
