Randomly Noted

Genzyme's stock has significantly underperformed the Nasdaq since the beginning of last year

Stocks in general took a clobbering in 2009. Genzyme’s stock performance was a downright mess (see the above chart) – attracting activist Carl Icahn who has recommended a slate of directors to sit on the Genzyme board and cook up ways to enhance shareholder value. Genzyme has decided to take matters into its own hands.

Today it unveiled a five-prong plan to increase shareholder value but it really boils down to doing two things – implementing a $2 billion share buyback and putting on the block its diagnostics and pharmaceutical intermediates business.

Investors were somewhat cheered – Genzyme shares today fell 1.92% while the Dow industrials fell 3.2%. But Genzyme is playing a little bit of  a risky game. At current prices, the stock buyback in total will be about 14% of its shares outstanding. It plans to borrow $1 billion soon to begin the buyback.

Genzyme doesn’t have much debt outstanding today. Take its debt and leases and other obligations it lists on its balance sheet (year end) and it had a debt to equity ratio of about 12.6%. Toss in $1 billion of new debt into the equation and that number nearly doubles to 25.6%.

We await shareholder reaction to their company becoming much more leveraged.