This morning brings yet another spiral around the drain for Genzyme’s attempted acquisition of Bioenvision: New York investment firm SCO Capital has just filed a letter with the SEC calling for an overhaul of Bioenvision’s leadership—and the revocation of Genzyme’s existing rights to the company’s coveted leukemia drug.
“You might expect that you would hear some screams in Cambridge when they read that,” SCO president Jeffrey Davis told me in a telephone interview.
The letter deals yet another blow to a once-promising takeover bid that began in May with Genzyme’s tender offer for at least 50 percent of Bioenvision’s stock. Yesterday Genzyme closed the offer after receiving less than half its target number of shares, but said that it still hoped to convince Bioenvision shareholders to approve the merger.
SCO’S salvo this morning indicates Genzyme is going to have continued difficulty achieving that goal. In it, SCO (which owns 13.4 percent of Bioenvision’s common stock) lays out a four-point plan to overhaul the company that includes exercising prior rights to put two of its own candidates on the board. “This board obviously cut a deal where overwhelmingly the common shareholders, the owners of the company, have said ‘No,'” says Davis. “So one could make the argument that they need to go.”
The letter also advocates retaining key employees and hiring new managers to make sure Bioenvision stays the course on its leukemia drug clofarabine, which is awaiting approval in Europe and the U.S.
In a third and potentially explosive point, SCO calls for terminating the existing Genzyme sub-license to clofarabine in the U.S. and Canada. The letter cites “numerous breaches” of the agreement by Genzyme, including failure to make key filings and disclosures and failure to reimburse Bioenvision for $10 million in R&D expenses.
Finally, the letter lays out SCO’s intention to seek a new exit strategy once clofarabine is approved in Europe and North America, when Bioenvision should command better terms. Says Davis, “We will seek an exit either through a new global partner or through a sale of the company.”
Davis says a deal with Genzyme could probably have been made for $9 a share, which he says was the analyst consensus one-year target price for Bioenvision. But Genzyme has held firm with a $5.60 offer. Normally, the acquiring company in such a disputed case would quietly canvass key minority stakeholders like SCO, Cumberland Associates, and Lehman Brothers Holdings to find what it would take to make a deal. “We never got a call,” Davis says. He adds, “I can’t find a single banker, lawyer, or anyone who’s ever done a M&A who can understand Genzyme’s strategy.”
Genzyme would clearly love to gain rights to clofarabine outside North America. However, if SCO’s latest moves are successful, the Cambridge company could find itself without even the North American rights.
Genzyme was not available for comment as we reported this story, but we will try to track the company down throughout the day.
Meanwhile, the last few days’ events have cheered individual Bioenvision shareholders like Adam Shay, who put up a web site called rejectgenzymetenderoffer.com. Shay points out that virtually all the shares Genzyme has received have come from Bioenvision’s management and board members—leaving the company with leadership with no stake in the company. “There probably will be some changes,” he says, although he wouldn’t predict how quickly any moves would come about given that the battle is still shaping up.
Adds Shay, “This thing is far from over. It’s probably just getting started.”
