By April 2009, Henri Termeer had been the Chairman and CEO of Genzyme for more than 20 years. Under his watch, Genzyme had grown to be one of the top-five U.S biotechnology firms. It first established its footprint in the treatment of rare genetic disorders, but its subsequent growth was the result of acquiring nascent biotechnology companies. Genzyme reached record revenues of $4.6 billion in 2008 and was expected to generate an increasing level of free cash flow in coming years. However operational problems in one manufacturing plant had led to a warning letter in late February 2009 from the U.S. Food and Drug Administration (FDA), which, combined with news on impending health care reform, had pushed Genzymes stock price from a high of $70.42 down to a low of $56.38.

Genzyme was being targeted by Relational Investors (RI), an activist investment fund that had a 2.6% stake in the company at the end of March 2009. RI had a history of engagements with the boards of numerous companies that, in several instances, resulted in the CEOs forced resignation. Ralph Whitworth, RI cofounder and principal, met with Termeer and delivered a presentation, arguing that Genzyme was trading at a discount. He offered recommendations on how Genzyme could address this: (1) improve capital allocation decisions; (2) implement a share-buyback or dividend program; (3) improve board composition by adding more members with financial expertise; and (4) focus executive compensation on performance metrics.

(i) Why is Mr. Whitworth arguing that Genzyme needs to implement a share repurchase program?

(ii) What problem would a share repurchase solve?

(iii) Wouldnt it be easier for Genzyme to simply announce a dividend to achieve the same objective of returning cash flow to the shareholders?