Business and organizational observers in San Francisco and its environs will get a first hand view of how smart – or not-so-smart – the buyers of Genentech and Barclays Global Investor’s iShares unit are in getting real value for their acquisitions. [Update: See Kathleen Pender’s good overview column Net Worth from the April 12th San Francisco Chronicle here ]
While the buyers are different, the name of the game is the same: get value equal or greater to your purchase price. In the case of BGI’s iShares unit, that purchase price is $4.2 billion to London based private equity group CVC Capital Partners. CVC is putting up $1.05 billion with Barclays PLC financing the balance. Apparently employees holding shares in certain BGI employee compensation plans will pick up a windfall from the purchase: Bob Diamond, chairman of BGI will reportedly receive $6.9 million according to the Financial Times. [Update: Read Lee Kranefuss’ interview – "We’re Ready To Stand Alone" – as the sale to CVC Capital was announced here.]
While $4.2 billion that Barclays sold iShares is not chump change, it pales in comparison to the $46.8 billion that Roche ponied up to buy the 44% of Genentech it did not already own. And with no friendly bank to help finance the buy, the load is all on Roche to make the purchase work out well.
CVC Capital and Roche both face similar employee acquisition issues if you distill it down and put it in simple terms: who is a keeper, and we want them to stay, and who is not a keeper, and we don’t care – or perhaps we prefer – if they go. And note there are likely several middle grounds, including employees the new owners would like to stay awhile, but perhaps not forever.
Roche very quickly faces a looming challenge June 30, 2009 with the trigger date of a retention plan set in place by Genentech last August, 2008. The plan as filed with the SEC provides a pay-out on that June 30, 2008 date. While Roche’s surprise bid for full acquisition of Genentech started in August 2008, as late as March 26, 2009 no integration plan had been announced. Genentech spokesperson Geoffrey Teeter recently noted "Roche will work with the leadership of Genentech to develop an integration plan," he said. "We had very constructive preliminary discussions. … It is too early in the process to provide additional details about how these changes will affect employees."
Genentech employees, even within the context of a down job market for much of the biotech world, have multiple options. They can choose to stay and see what happens, or alternately leave – retention bonus in hand – and spend some time on the beach until the market turns. What will be interesting to see is what Roche does, if anything, to proactively manage what could be a tide of terminations. And you can throw in one more great unsaid: who, if anyone, from Art Levinson’s exec team will stay on board?
I remember hearing from my former colleagues at Chiron that they were amazed that another large Swiss pharmaceutical firm from Basel – Novartis in the Chiron case – failed to anticipate, manage, or respond effectively to the large number of Chiron employees who terminated after Novartis acquired the balance of that firm that they did not own.
Since the San Francisco Bay area is filled with start-ups launched by former Genentech talent, I would expect to see more Genentechers going the start-up route. At a minimum, Roche faces a tough integration challenge .
On the iShares side, the issues – given the fact that the industries are different – are strangely similar. While there is no iShares retention plan in place – at least none publicly announced – as noted above iShares employees who were participants in a Barclays Global Investors stock compensation scheme known as the Employee Equity Plan will receive payouts. While no EOP options were apparently issued in 2008 there is likely considerable potential value for employees. Details of some of the transaction details can be found here . The deal for iShares is expected to close in November 2009.
One of the early big issues for CVC Capital partners is who, if anyone at iShares, to lock-in with some sort of retention scheme. While the financial services job marketplace is lousy, not unlike the options open to Genentech employees, some iShares employees will have ample cash from the BGI EOP plan to take some time off and wait until the job market improves. In particular this includes senior managers like Lee Kranefuss and Mike Latham, who have built iShares into the market leader it is today.
Unlike Roche with Genentech, CVC Capital / iShares will need to figure out the myriad of details that it takes to set up and run a standalone company. While iShares may have chafed – as many operating divisions due – under the parent umbrella of BGI, iShares will now to figure out everything from employee benefit plans to who picks up the mail – in other words all the stuff of real start-ups.
In both the case of Genentech and iShares you can be assured that the telephones and Blackberries (more likely iPhones in the case of Genentech) are working overtime as competitor companies try to poach the creme of the talent crop before that talent gets locked in for a time.
I hope these acquisitions go well. There are great people at both iShares and Genentech, and I hope whatever happens works out well for them. The road, unfortunately, is pretty spotty with the success of most acquisitions – which bodes badly for Roche. iShares case is somewhat different since it’s a matter of a different parent company and the matter will really turn on how well CVC Capital Partners manages their new possession.