GSK a merger too far

Team 8

Manel Kossentini Tarek Kall Majdi zarbout

History Background
CVV 1989 1995

1 9 98

Why did the merger take place ?

From strategic perspective
The merger of two big companies will allow GSK to become the leader of the pharmaceutical industry The industry requires a huge budget to be allocated to the R&D to finance research to find out new drugs A competitive advantage derived from a global marketing spread and a larger R&D budget Smithkline Beecham (SB) have existing pipe line of 4 promising drugs in the final stages of development which was attractive to Glaxo wellcome (GW) who depended heavily on inherited sales of its products. The merger of the two groups would generate a sustainable long-term growth strong market position thanks to diversified range of products

Why did the merger take place?

Political and environment factors
Market & Time pressure to follow ongoing amalgamation trend. Glaxo Wellcome and SmithKline had to concentrate in order not to become the target of a takeover (maybe hostile) Preserve UK pharmaceutical industry from foreign takeover

Why did the merger take place ?

From Shareholder perspective A sustainable long-term growth will enhance the shareholders value Cost reduction, economy of scale and larger market share will increase the profitability GSK will raise as the biggest pharmaceutical company and third largest corporations in the world, leading with high expectation to shareholders

Why did the merger take place ?

From managerial perspective
Enough available budget for R &D Welthy situation allows GSK managers to reorganize the structure of the company. GSK was confident to avoid the Sudden-death syndrome that afflicts some companies when their blockbuster loses protection. Reputation and incentives and bonus for managers Protection from threat of takeover

The role of the top managers in the deal making process

In 1998, the merger of SB and GW seemed ready to be effective but there was a conflict between the two CEOs and the deal was called off Leschly did not accept any position other than CEO and he was close to retirement , thus not too strong incentive to accept the deal. In 1999,Leschly has retired, the road is clear for the merge. In 2000,Jean-Pierre Garnier, CEO and former COO of SB, became CEO of new entity. The new CEO of GSK is highly qualified and have good driven performance

Integration Style : Glaxo Wellcome vs. GSK

Glaxo Wellcome 1995
Wellcome, strong in science and weak in marketing had a laissez faire style suited for innovation. Glaxo, top industry position in sales, and strong culture of financial control

GSK 2000
The merger creates the worlds biggest pharmaceutical firm after U.S. long regulatory delays. Restructuring R&D departments Reengineering marketing operations Cost cutting policy Both company cultures survived the amalgamation and managers kept the ex SB or Glaxo way of doing things. The result was a lack of motivation of the employees because of many changes accruing in short time and unimpressive figures and public skepticism

During the integration phase Glaxo attempted to dominate and obliterate welcomes culture The result was a severe clash, unimpressive figures and public skepticism

Evaluation of the merger outcome Non achievement in the early stage of integration

Scepticism of the investors ( bad records of GSK at taking drugs from PIII trials to markets) Few launch of interesting medicines and no blockbusters: GSK became dependent on licensed products (reorganisations, new structure, forming and reforming the teams, changes in location delays in plans )

Evaluation of the merger outcome Non achievement in the early stage of integration

a lack of motivation of the employees because of many changes accruing in short time Bureaucratie approach established in the company (difference in management style, delays.) Bad reputation ( accusations of profiteering) and distracting rumors and gossiping

Evaluation of the merger outcome (in recent years)

Achievements

Future M&A : Yes/NO

No more M&A:
Big pharma should exploit synergies of current conglomerate than searching new M&A Rationalize and monitor effective R&D efforts

Yes for new M&A:

To escape the fast growth of generics big pharma To keep global market control (more power, more money, more R&D)