GSK a merger too far

Team 8

Manel Kossentini

Tarek Kall

Majdi zarbout

CVV

History Background

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 reorganizethe structure of the company.

GSK was confident to avoid the Sudden-deathsyndrome that afflicts some companies when theirblockbuster loses protection.

Reputation and incentives and bonus for managers

Protection from threat of takeover

The role of the top managers in the dealmaking process

In 1998, the merger of SB and GW seemed ready to beeffective but there was a conflict between the two CEOs andthe deal was called off

Leschly did not accept any position other than CEO and he wasclose to retirement , thus not too strong incentive to accept thedeal.

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 drivenperformance

Glaxo Wellcome 1995 GSK 2000

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

During the integration phase Glaxoattempted to dominate and obliterate welcomes culture

The result was a severe clash, unimpressive figures and public skepticism

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

Integration Style : Glaxo Wellcome vs. GSK

Evaluation of the merger outcomeNon achievement in the early stage of integration

Scepticism of the investors ( bad records ofGSK at taking drugs from PIII trials tomarkets)

Few launch of interesting medicines and noblockbusters: GSK became dependent onlicensed products (reorganisations, newstructure, forming and reforming the teams,changes in location delays in plans )

Evaluation of the merger outcomeNon achievement in the early stage of integration

a lack of motivation of the employees becauseof many changes accruing in short time

Bureaucratie approach established in thecompany (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)