Corporate Turnaround of Pharmacia & Upjohn
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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
Excerpts
About Pharmacia
Pharmacia was founded in 1911 in Stockholm, Sweden, by CM deKunwald. The company's first product was phospho-energon energy pills made from animal products and in the first year, the company's turnover was Skr 20,000 . The drug became the mainstay of the company, accounting for over 30% of the sales for several years. Phospho-energon was also sold in several countries. Not relying on a single product, Pharmacia came up with several new products like Cedrolinol, produced from Cedar wood, for treating rheumatic complaints in 1912. In 1913, Pharmacia brought out Sodamint to treat stomach complaints and Paraform containing formaldehyde for treating throat infections...
Rationale for the Merger
Pharmacia and Upjohn had comparable market values and the merger was touted as a merger of equals. Before the merger, Upjohn had been the world's 19th largest pharmaceutical company and Pharmacia the 18th largest. At the time of the merger, Upjohn was weak in terms of R&D compared to its competitors in the industry. Its patents on several drugs like Xanax had expired. With no profitable drugs in the pipeline, the company was seeking a European partner. Zabriskie was of the view that a friendly merger would give the company more markets for its products and help it enhance its growth. Pharmacia's Genotropin, a growth hormone, was facing problems due to severe price competition. The company was also looking for a new distribution and marketing network to distribute its products in the US...
The Problems
Since the very beginning, the merger of Pharmacia and Upjohn failed to get on to the right track. According to Hassan, "Pharmacia was a European company that did not have a very cohesive culture to begin with; it was the product of a merger between a Swedish and an Italian company. And it was merging with Upjohn, a very conservative company from Kalamazoo Michigan."Employees from Upjohn feared that the merger would affect the people-oriented culture and family style management of the company. In Upjohn, job security was high as the company gave prime importance to the employees, even while taking business decisions. The differences between the companies were so prominent that it was beyond the ability of the management to arrive at a consensus....
Hassan's Turnaround Efforts
Hassan's initial efforts were directed at addressing the existing problems of the company and realizing the synergies announced during the Pharmacia-Upjohn merger. His first task as the CEO of Pharmacia & Upjohn was to address the employees. At a press conference in New York, he informed the employees that the company would be moving in a new direction under him. Hassan's next move was to visit the pharmaceutical product centers across Europe, where he interacted with the centers' employees. He held one-on-one meetings with some of the senior management personnel. These meetings helped him realize that morale among the employees was low and that there was a growing distrust among them. He found that the managers were not willing to work with employees from the other countries, and that the employees were viewed as outsiders...
The Results
By 1998, Hassan was largely successful in turning around the company. In the first quarter of 1998, the company began posting profits. In 1998, the net income grew to US$ 691 million with revenues at US$ 6.8 billion. Announcing the results for 1998, Hassan said, "Through our actions to date, we have created a new Pharmacia & Upjohn, a company that is on track to become a high performance competitor. We have now delivered four consecutive quarters of growth, and double-digit earnings for 1998 - exactly as promised. Our challenge now is to sustain the turnaround and build long-term growth."....
Exhibits
Exhibit I: Pharmacia & Upjohn - Financial Summary (1995-99)
Exhibit II: Pharmacia Corporation - Financial Summary (1999-2001)
Exhibit III: Visual of Upjohn - Friable Pills
Exhibit IV: Pharmacia - Best Managed Behaviors
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