Corporate Turnaround of Pharmacia & Upjohn
|
Case Code: BSTR255 Case Length: 17 Pages Period: 1995-2006 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.400 Organization: Pharmacia & Upjohn Industry: Pharma Countries: US / Sweden Themes: Merger, Corporate Turnaround, Leadership |
Abstract Case Intro 1 Case Intro 2 Excerpts
"They (Pharmacia & Upjohn) came together because both were outliners in a consolidating industry, and they both had roughly comparable market values before the merger. So a merger of equals was the logical way to survive. On paper it all made a lot of sense. The issue was the execution of the merger afterwards."
- Fred Hassan, Former President and CEO, Pharmacia Corporation, in 2001.
Pfizer Acquires Pharmacia
On July 15, 2002, Pfizer Inc. (Pfizer), one the world's leading pharmaceutical companies, announced the acquisition of Pharmacia Corporation for US$ 58 billion in stock. The deal resulted in a company with annual revenues of over US$ 48 billion and an R&D budget of US$ 7 billion. According to Hank McKinnell, Chairman and CEO of Pfizer, "By combining with Pharmacia, we are ensuring that our core capabilities in the discovery, development, and commercialization of new medicines are strong around the world." Pharmacia Corporation was a result of the merger between Pharmacia & Upjohn Inc. (Pharmacia & Upjohn) and the Monsanto Company in the year 1999.
The merger resulted in a US$ 37 billion pharmaceutical group. In 1995, Sweden-based Pharmacia AB (Pharmacia) merged with US-based Upjohn Company (Upjohn), to form Pharmacia & Upjohn. At the time of the merger, industry analysts opined that the merger would create a major force in the global pharmaceutical market. Through the merger, Pharmacia and Upjohn aimed to achieve a leadership position in the areas of infectious diseases, women's health, nutrition, etc. The merged entity was expected to reap the advantages of a complementary geographical presence, with Pharmacia gaining access to the marketing and distribution infrastructure of Upjohn in the US and Upjohn gaining similar support from Pharmacia in European countries. The merged entity expected to sell its products in new international markets and aimed at becoming the fifth largest pharmaceutical company by the year 2000 (Refer to Table I for top five pharmaceutical companies in the world in 2000).
However, despite the synergies between Pharmacia and Upjohn, the merger did not yield the expected results. This was mainly due to the cultural differences between the companies. The merged entity reported poor earnings and this was attributed to the confusion created in the company by the merger. To begin with, Pharmacia and Upjohn could not reach an agreement on where the corporate headquarters should be located. Besides, there were differences between the top executives of both companies, which led to a lack of cooperation between them.
The company's efforts were not directed at achieving the synergies and financial goals of the merger, and this resulted in the exodus of several talented employees. This had an adverse affect on sales and the company issued profit warnings for four quarters in a row in 1997. The merger costs exceeded the budget by more than US$ 500 million. Between 1996 and 1997, Pharmacia and Upjohn's combined sales dropped by 8% to US$ 6.6 billion. The earnings went down by 53% from US$ 550 million to US$ 258 million. It was in such a scenario that Fred Hassan (Hassan), Executive Vice-President, American Home Products5 (later Wyeth), joined Pharmacia & Upjohn as CEO in May 1997. Hassan was largely responsible for turning the company around. By the third quarter of 1998, the company was back on track and had begun showing a growth in profits. The net income reached US$ 799 million by 1999, growing by 14% over the previous year. With the 1999 merger with Monsanto, the Pharmacia Corporation was formed. The growth continued and by mid-2002, the company was acquired by Pfizer (Refer to Exhibit I and Exhibit II for the financial details of Pharmacia & Upjohn and Pharmacia Corporation)...
Buy this case study (Please select any one of the payment options)
| Price: Rs.400 |
Price: Rs.400 | PayPal (9 USD) |
