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Integration problems and turnaround strategies in a cross-border merger A clinical examination of the Pharmacia-Upjohn merger
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Integration problems and turnaround strategies in a cross-border merger A clinical examination of the Pharmacia-Upjohn merger Terry Belchera,b, Lance Nailb,* a
Department of Finance and Accounting, Auburn University at Montgomery, 7300 University Dr., Montgomery, AL 36117–3596, USA b School of Business, University of Alabama at Birmingham, Birmingham, AL 35294, USA
Abstract With the increasing globalization brought about by consolidation, crossborder mergers are growing increasingly popular as means of rapidly achieving size-related economies of scale and scope as well as global reach. However, integration issues such as culture clashes, which are problematic in domestic mergers, are often more severe when the merging companies are headquartered in separate countries with widely differing social mores. This study is an examination of one such merger—the 1995 merger between pharmaceutical companies Upjohn of the United States and Pharmacia of Sweden. The clinical study explores the many initial integration problems experienced in this merger and the turnaround strategy used to counteract the problems. 20002000 Elsevier Science Inc. All rights reserved. JEL classifications: F3, G3 Keywords: Merger; Acquisition; International merger; Culture clash; Corporate integration
1. Introduction On August 20, 1995, the pharmaceutical companies Upjohn, based in the United States, and Pharmacia, based in Sweden, announced a $6⫹ billion merger agreement that resulted in one of the largest crossborder mergers at the time for a U.S. firm. On completion of the merger in November of 1995, the merger-of-equals resulted in * Corresponding author. Tel.: ⫹001-205-934-8860; fax: ⫹001-205-975-4427. E-mail address: [email protected]. 1057-5219/00/$ – see front matter 2000 Elsevier Science Inc. All rights reserved. PII: S1057-5219(00)00034-X
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Pharmacia-Upjohn—the ninth largest pharmaceutical company in the world at that time. of aggregate transaction value, offers a rich case study of the many problematic issues that must be addressed when integrating two formerly independent companies into a single business entity—issues that are further complicated when the firms are domiciled in different countries. Although culture clashes between merging U.S. firms can be quite challenging, these problems are compounded when functional differences exist in societal norms and general business practices between the countries in which the companies are located. In this study, we examined such issues as presented in the merger of Pharmacia and Upjohn. We also analyzed the strategies used to overcome the initial integration problems associated with this merger. The remainder of our paper is organized as follows: section 2 presents the industry conditions that motivated this merger, section 3 outlines the major integration problems initially encountered in the merger, section 4 describes the strategy used to turn around the failed merger, and section 5 concludes.
2. Industry conditions leading to international consolidation U.S. industry conditions were favorable to the merging of Pharmacia and Upjohn at the time of the announcement. Large research-intensive and generic manufacturers alike had argued successfully, slightly more than a decade earlier, against 1962 drug legislation that was aimed at curtailing monopoly profits in the pharmaceutical industry and the subsequent regulatory changes imposed by the Food and Drug Administration. In 1984, new legislation was passed that effectively gave research-intensive and generic manufacturers of drugs what they wanted—relief from intrusive regulation.1 The earlier 1962 drug amendments were conceived and instituted in the wake of the Kefauver Committee’s 1959 investigations into pharmaceutical prices and profits. In the years that followed, the number of drug introductions into the U.S. market declined substantially. In addition, the effective length of time granted to breakthrough products under U.S. patent protection diminished, as more time was spent in regulatory review. Perhaps, more importantly, the regulatory burdens restrained entry of competing manufacturers. Under the old legislation, product innovation was a lengthy process that began years before a final approval for marketing by the Food and Drug Administration. Baily (1972) outlined three clinical research phases necessary for the approval process. The first phase sought to establish the therapeutic efficacy of a trial compound. The second phase sought to resolve the safety of a trial compound for short-term consumption. The third phase sought to conclude the safety of a trial compound for long-term human consumption. The new legislation substantially changed the regulatory landscape. Title I extended the Food and Drug Administration’s use of Abbreviated New Drug applications so that only biological equivalence was the standard for approval instead of defining anew the safety and efficacy of existing compounds. A 3- to 5-year period of exclusive
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marketing was also provided for a new compound, independent of whether the product had obtained patent protection. Title II extended patent protection for up to 5 years with a maximum protection period of 14 years to offset the time consumed during regulatory review. Nevertheless, the 1984 legislation did not directly address the most pertinent social question confronting the industry—whether the benefits from rewards to innovation are more or less important than the rewards from increased competition from lowerpriced competitive products. The 1984 legislation was essentially a political compromise that gave large research-intensive firms a greater incentive to innovate by extending the time available for patent protection and smaller generic firms the opportunity to gain market share through price competition. In the pharmaceutical industry, competitive survival is an artifact of a firm’s ability to innovate successfully. The literature defines three specific operating areas in which innovation improves firm performance.2 Process innovation permits the manufacturing of pharmaceuticals at lower cost by capitalizing on economies of scale. Product innovation permits increased profitability through the discovery and patenting of breakthrough therapeutic compounds. Organizational innovation permits the production of pharmaceuticals at lower cost by capitalizing on economies of scope. Research and development and advertising expenditures are the lifeblood of the pharmaceutical industry. For example, the relative prices of comparable drugs sold by both product innovators and their generic competition supports the strategy to innovate. Innovative drugs sell for a substantial premium over comparable marketed compounds. This price advantage appears to be sustained for a number of years after introduction.3 Eventually, pricing differentials erode as price adjustments occur— reflecting the substitutability of comparable pharmaceutical compounds. The prospect for improved financial performance through a strategy to innovate appears to have been well known by the boards of directors of both Upjohn and Pharmacia. Each sought and eventually merged with a partner that provided an attractive opportunity to innovate their respective processes and organizations. In addition, the turnaround strategy used by the new chief executive officer (CEO) evidences the fact that improved U.S. regulatory conditions were an important factor in the successful marriage of the two firms. Although regulatory and industry factors were significant motivational forces for international consolidation, firm-specific factors also led to the merger between Pharmacia and Upjohn. Upjohn’s research pipeline was weak relative to its industry peers, and patents had recently expired on several of its drugs—including the profitable anxiety drug Xanax. This weakened current and future product line made Upjohn a persistently rumored hostile takeover target. Pharmacia’s management team had sought prospective merger partners in Europe to elevate the firm from second-tier industry participant to major industry competitor.4 However, Volvo and the Swedish government were the two largest shareholders of Pharmacia and exercised their corporate control by refusing to merge with another European pharmaceutical company—searching instead for an American firm offering easier access to the U.S. market.5
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Thus the merger of the two firms seemed to be the ideal defensive merger for two relatively minor players in the pharmaceutical industry—a weak U.S. firm threatened by hostile takeover and a small Swedish firm without significant access to the more profitable U.S. market. After meeting to discuss a joint marketing program in March 1995, the boards of directors of both firms concluded that a merger of the two firms provided a convenient marriage and outlined the transaction details leading up to the August announcement of intent to merge. 3. Short-term culture clashes and integration problems As can be seen in the sequence of events outlined in Table 1 and the cumulative abnormal returns associated with these events in corresponding Figure 1, news of the merger was initially welcomed by the capital markets. Pharmacia shareholders experienced a cumulative abnormal return (CAR) of 7.6% over the 26-day period of 20 days preceding announcement through 5 days after the announcement. Upjohn shareholders experienced a CAR of 3.2% over the same event period.6 Investors positively received the announcement of Upjohn CEO John Zabriskie that the merger would result in a $500 million annual cost savings through a workforce reduction of 4,000 to 4,100 jobs from the combined workforce of nearly 35,000 employees. The merger was designed to be a true international merger-of-equals, with Pharmacia and Upjohn shareholders receiving equal ownership in the newly formed Pharmacia-Upjohn. Board membership was also split equally, with an agreement that the CEO and chairman could not be from the same continent. Thus Upjohn CEO Zabriskie was to become the new CEO and Pharmacia chairman Jan Ekberg was named nonexecutive chairman—a management arrangement hinting that Upjohn management may have the greater influence in the day-to-day operations of the new corporation. The boards and stockholders of both companies approved the merger, and it was completed on November 2, 1995, with trading in the new shares of Pharmacia-Upjohn beginning on November 3, 1995. Sentiment about the merger continued to be strong after the announcement: the weighted-average CAR of Pharmacia and Upjohn was 7.5% from day ⫺20 through merger completion—consistent with the total value gains reported by (Bradley, Desai, and Kim, 1988) and (Maquieira, Megginson, and Nail, 1998). The combined Pharmacia-Upjohn continued to outperform the industry with the capital markets’ continuing expectations of synergy-related cost savings. The CAR of Pharmacia-Upjohn was another 4.8% from the merger completion date until the first combined reporting of earnings on February 22, 1996. Analysts expected the first quarter of reported combined earnings to be much lower than the combined premerger earnings of Pharmacia and Upjohn because of substantial merger costs and initially greeted the news of a 78% drop in earnings as a virtual nonevent, with a negative return of slightly over 1% on the announcement day. However, analysts became increasingly skeptical of the expected cost savings from the merger as more information was disseminated by the company. Little evidence of the planned 4,000 layoffs was exhibited by the company except for an announced termination of 900 jobs in Sweden. Matters worsened when management announced
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Table 1 History of events: Chronological summary of major events relating to the merger of Pharmacia and Upjohn Date
Event
August 20, 1995 November 1, 1995 November 3, 1995 February 22, 1996 March 4, 1996
Pharmacia and Upjohn announce merger agreement Merger approved by all shareholders Merged company trades as Pharmacia-Upjohn Merger restructuring costs cause fourth quarter net income drop of 78% Company announces plan to streamline R&D operations beginning with the sale of Plasma Products with 1995 revenues of $65 million and a workforce of 200. Signals first step in plan to eliminate approximately 25 such R&D facilities. Unexpected merger costs cause first quarter net income drop of 80% Rumors surface that Pharmacia is in talks to acquire therapeutic drug firm Allergan Volvo blocks attempted acquisition of Allergan because of unfavorable tax treatment Company announces plans to redistribute R&D funds from internal development to external research through joint collaborations Volvo announces intent to reduce stake in company by $2 billion Company backs out of blood substitute joint venture and takes $69 million charge Unexpected merger costs cause second quarter net income drop of 64% Company announces third quarter net income drop of 12% and warns that 1997 earnings will be flat CEO John Zabriskie resigns Company announces that fourth quarter earnings are up 500% because of prior year’s charges, but also announces that it will spend $150 million on new product launches rather than the previously anticipated $100 million Company issues another profit warning—this time warning that 1997 earnings will fall below 1996 earnings Company announces plan to improve performance through cost cutting and more efficient asset management Fred Hassan elected Chairman and CEO of Pharmacia-Upjohn Amersham announces that it is pursuing strategic alliances with PharmaciaUpjohn Company engages in a drug brand swap with Johnson & Johnson, giving Pharmacia-Upjohn a stronger presence in growing markets Hassan announces restructuring/turnaround strategic plan Company names Volvo CEO Soeren Gyil as new Chairman Hassan announces plans to move headquarters to U.S. east coast near other large U.S. pharmaceutical companies CEO Hassan announces further restructuring plans Company announces possible sale of nutrition division Company announces earnings in line with analysts’ expectations Wall Street Journal article on the successful turnaround at Pharmacia-Upjohn appears Wall Street Journal article featuring strategy used by Hassan to orchestrate the successful turnaround at Pharmacia-Upjohn appears Company announces intent to acquire Sugen Company announces of intent to merge with Monsanto in a merger of equals
May 3, 1996 May 13, 1996 May 14, 1996 May 22, 1996 June 14, 1996 July 3, 1996 August 5, 1996 October 31, 1996 January 19, 1997 February 26, 1997
April 23, 1997 April 29, 1997 May 10, 1997 May 30, 1997 June 5, 1997 July 2, 1997 August 20, 1997 October 13, 1997 October 30, 1997 November 4, 1997 April 29, 1998 October 30, 1998 February 2, 1999 June 15, 1999 December 19, 1999
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Fig. 1. Cumulative Abnormal Return.
that restructuring costs would be much higher than originally anticipated—rising from original estimate of less than $100 million to a new estimate of between $150 and $175 million. The company attempted to allay investor fears that merger-related savings were not materializing quickly enough with a March 4, 1996 announcement that it would streamline research and development operations—starting with the sale of its Plasma Products division. The sale of this division would eliminate 200 jobs and was the first of approximately 25 research and development facilities planned for sale or closure. The CAR for Pharmacia-Upjohn was ⫺16.1% from the first announcement of combined earnings until the second quarterly report on May 3, 1996. Because the management of Pharmacia-Upjohn had already warned of larger-thanexpected restructuring charges, the 80% decline in earnings announced for the second quarterly report was again greeted with little fanfare by the capital markets—again resulting in a stock price drop of less than 1% at announcement. One-time restructuring charges of $179 million (at the high end of the expected range) were announced, which were the result of termination provisions for 2,600 employees. Thus signs of the promised cuts were finally materializing. However, management also indicated that future restructuring charges were forthcoming. Less than 2 weeks after the earnings announcement, Pharmacia-Upjohn management surprised the capital markets with news that it had been in acquisition talks with therapeutic drug and product manufacturer Allergan. On May 13, 1996 the Wall
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Street Journal reported that rumors indicated that the two firms had been in acquisition talks and that a spike in Allergan’s stock and option volume validated the rumor. Although the eye care products offered by Allergan seemed to be a good complement to the line of ophthalmology drugs offered by Pharmacia-Upjohn, the integration of Pharmacia and Upjohn was far from complete. As one analyst noted, a merger with Allergan would be an attempt to improve earnings through revenue growth, whereas the merger of Pharmacia and Upjohn sought to improve earnings through cost cutting. These talks signaled that earnings growth via cost-cutting measures would be slower than expected and that the management team from Pharmacia-Upjohn was searching for earnings growth from other sources. Management had stated as much to investors with a prior statement that the firm intended to increase earnings through buying businesses rather than reducing earnings via shedding existing businesses. However, detailed analysis of a possible merger between Pharmacia-Upjohn and Allergan was quickly quashed as management confirmed the next day that the two firms had been in acquisition negotiations, but that talks had been terminated because of the objections of the largest shareholder in Pharmacia-Upjohn, AB Volvo. The management of Volvo had previously indicated that it wished to reduce significantly (or completely) its 14% ($2⫹ billion) stake in Pharmacia-Upjohn to concentrate on its core automobile operations. Because a combination with Allergan would have to be accounted for as a pooling-of-interests and would limit Volvo’s ability to sell its shares, Volvo blocked the acquisition talks. This action indicated that Volvo would likely be selling its stake in the company in the near future. Given that Pharmacia-Upjohn was restricted from making major acquisitions as long as Volvo was a major shareholder and held directors seats, management again turned to cost-cutting measures to improve performance. On May 22, 1996, the company announced that it would halt development of approximately 20% of its drugs in the development pipeline and use the savings to explore long-term research collaborations with other firms. Although Volvo announced in June that it was reducing its stake in Pharmacia-Upjohn by roughly $2 billion (from 14% to 3%), management continued to pursue earnings improvement through cost-cutting measures. This continued with the July withdrawal from a strategic alliance with Biopure for the development of a blood substitute. Medical experts had determined that the development of a blood substitute was a very risky venture with a low probability of success, but with a multibillion dollar payoff if successful. Pharmacia-Upjohn (and the predecessor Upjohn) had already spent more than $100 million on the venture and, believing that the risk of continuing the venture was unwarranted, took a $69 million charge to exit the alliance. This charge added to cumulative restructuring charges that had now exceeded revised estimates of $569 million and were now approaching $800 million according to quarterly results released in August—eight times those expected at the time of the merger announcement. Continuing problems at Pharmacia-Upjohn became evident with an October profit warning from management that third-quarter earnings would be lower than expected. Then, with the actual announcement of earnings on October 31, 1996, management cautioned investors that earnings estimates for 1997 were too high and that 1997
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earnings could actually be lower than 1996 earnings. At this point, investors began losing confidence in the management of Pharmacia-Upjohn and punished the stock with 5% drop at announcement, which began a period of stock price performance that severely lagged the industry. By the year’s end, the 1996 CAR for PharmaciaUpjohn was ⫺19.4% and the cumulative postmerger CAR was ⫺17.4%. One source of the problems at Pharmacia-Upjohn surfaced with the sudden and unexpected resignation of CEO Zabriskie on January 19, 1997. Zabriskie’s American style of management had rankled many European subordinates who were unaccustomed to management by directive rather than consensus, and many junior executives and researchers had left the firm because of Zabriskie’s management style and the goals he had established for the company. Zabriskie’s long-term goal was to integrate Pharmacia and Upjohn facilities as quickly as possible to generate cost savings and then to use these savings to finance acquisitions such as the aborted Allergan deal to obtain higher revenue growth. Instead, Zabriskie was hampered by board decisions such as Volvo’s actions to block the acquisition of Allergan as well as the compromise headquarters location of London that Zabriskie was forced to accept. Because the combined company had major operations in the United States, Sweden, and Italy, the board of directors elected to maintain autonomous operations in all three countries with a new headquarters in London to which all three existing centers would report. This arrangement added more overhead to the combined firm and made the task of reducing other overhead costs that much more onerous and was counter to Zabriskie’s long-term goals for the company. Zabriskie’s departure was greeted with a near 7% drop in stock price. Jan Ekberg replaced Zabriskie as CEO on an interim basis and director Richard Brown of Britain’s Cable & Wireless was selected as interim chairman of the board. Further insight into the problems at Pharmacia-Upjohn was outlined in a February 4, 1997 Wall Street Journal article that described many of the culture clash issues and integration problems experienced by this relatively newly merged firm. Aside from language problems and general differences in management style (Americans were hands-on and attempted to hold individuals accountable for their duties, whereas Europeans were more hands-off and team-oriented; Americans were also more confrontational in decision making), many cultural differences such as smoking in the workplace, serving wine with lunch, and standardized vacation times led to conflicts and frustration between American employees and their European counterparts. For example, American managers had scheduled meetings with their European peers for the summer months only to find out that most Swedes vacation the entire month of July and most Italians take the entire month of August for vacation. Thus the Americans’ lack of knowledge of Swedish and Italian leisure customs caused many executivelevel meetings to be delayed by several months. Other cultural differences inhibited management from realizing the synergies expected when the merger was announced. The headquarters compromise created an inefficient bureaucracy whereby managers in London were directing autonomous operations in Michigan, Stockholm, and Milan from afar. Not only did the headquarters decision add to overhead costs, it also resulted in other unexpected costs. Information
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systems between the three centers were not consistent and thus many reporting functions were problematic and led to delays in applications for new drugs and unexpected currency risk exposure. Along the same lines, lack of Italian accounting rules also made obtaining accurate financial information a difficult task. Another impediment to realizing cost savings was the strength and protection of labor unions in Italy, severely limiting the firm’s ability to realize cost savings through layoffs involving the Italian employee base. Despite the negative report in the Wall Street Journal, Ekberg remained confident about the eventual success of the merger, stating “(the merger was) the right thing to do—a move that’s strengthened the two companies. We have to make some smaller changes to release the full power of the two companies.” Ekberg and Brown assured investors that a determined search for a new CEO would result in a person who could lead Pharmacia-Upjohn to success in future years. In the interim, Pharmacia-Upjohn posted fourth-quarter earnings that were in line with revised expectations, but it disappointed investors again with news that expenses related to new product launches would be $150 million rather than the previously expected $100 million. Then, on April 23, 1997, Pharmacia-Upjohn issued yet another profit warning for the quarter— this time because of decreased sales. Investors lost all confidence in the interim management team as costs had not been contained since the merger had been completed and now revenues were declining. The stock price dropped more than 13.5% on the announcement, and the CAR for Pharmacia-Upjohn since the merger was completed was now ⫺41.1%. Ekberg made a statement the next week that management intended to correct the problems of the company by again cutting costs and improving asset management. Pressure was mounting from institutional investors for a new permanent CEO to be named—preferably from outside the existing management team. Investors’ demands were met within 2 weeks with the appointment of Fred Hassan as the new CEO of Pharmacia-Upjohn. The cumulative postmerger CAR for Pharmacia was ⫺37.0% before the announcement of the new CEO. 4. New chief executive officer and turnaround strategy On May 10, 1997, Fred Hassan was brought in from industry rival American Home Products as an outside CEO to turn around the morass that the merger had become. Hassan was a relatively young CEO at 51 years old and had spent his entire career in the pharmaceutical industry—8 years with American Home Products and 17 years with Swiss pharmaceutical company Sandoz before that. During his tenure at American Home Products, Hassan shared responsibility for the integration of the American Cyanamid acquisition. The capital markets liked the match of Hassan’s credentials and the needs of Pharmacia-Upjohn, driving the stock price up nearly 6.5% on the announcement. Ekberg returned to his post of chairman and Brown resumed his duties as a director. Hassan proclaimed that he would have more credibility with all employees of Pharmacia-Upjohn because he was loyal to neither of the former companies nor their management teams and had no geographic ties to either former firm because he was
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born in Pakistan.7 As Hassan told a Wall Street Journal reporter, “(W)hen Company A weds Company B it is important to attract some outside talent,” a philosophy that also carried over to future hiring decisions. Because of the pressures of improved performance demanded by institutional investors, Hassan was forced to develop a turnaround plan in short order to demonstrate that he had a strategic plan for addressing not only the company’s existing problems but also a plan that reached beyond these problems and could turn the company into the top-level international pharmaceutical firm that was promised at the announcement of the merger of Pharmacia and Upjohn. While developing this strategic plan, Hassan did make a couple of small strategic decisions that signaled that he would be pursuing revenue growth as a component of his plan. First, the company disclosed in June that it would engage in a joint venture with Amersham International to create the world’s largest biotechnology supply company. Although negotiations had taken place before Hassan’s arrival, it was ultimately his decision to pursue the alliance with Amersham. Also in June, the company agreed to swap certain drug brands with consumer drug giant Johnson & Johnson. Pharmacia-Upjohn swapped its over-the-counter brands Motrin (pain reliever) and Mycitracin (antibiotic ointment) for the Johnson & Johnson brands of Pediacare (pediatric medicines), Nasalcrom (allergy medication), and Micatin (athlete’s foot treatment). The brand swap gave Johnson & Johnson a strong brand name in an area where they already had strong presence (over-the-counter pain medication) and gave Pharmacia-Upjohn an exit from their weak presence in the pain-medication product line and an immediate foothold in the faster-growth consumer drug segment of pediatric drugs. After 9 weeks in the post of CEO, Hassan issued a profit warning for 1997 along with certain elements of his turnaround plan. Hassan’s approach to turning around the company involved a quickly developed, but patiently crafted, strategic plan that revolved around individual input from senior management in one-on-one meetings and from interaction with employees from on-site visits to company facilities. Hassan’s interaction with employees culminated in the strategic plan that was announced on July 2, 1997. Key components of Hassan’s plan were streamlining operations, fully integrating the former Pharmacia and Upjohn units—especially in geographic terms, and also streamlining management with a heavy mix of outside managers with no ties to either of the former firms.8 A greater marketing and sales concentration in the United States was also listed as a major goal of the new strategic plan. The board of directors disappointed some investors by holding true to its original merger pact and not appointing Hassan as chairman in addition to CEO. Instead, Ekberg stepped down as chairman on August 20, 1997 and resumed the role of director while former Volvo CEO Soeren Gyll was promoted from director to chairman. Some analysts expressed concerns about the governance of the company given their strict adherence to the compromise requirement that the chairman and CEO could not be from the same continent. However, Hassan proved proficient in persuading the board of directors to support his more radical restructuring plans. In October 1997, Hassan convinced the board that the compromise reached concerning headquarters in London should be reversed
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and that headquarters should be located in the Eastern United States, where most of the major pharmaceutical firms were located.9 Also, Hassan succeeded in persuading the board that the centers in Stockholm and Milan should be directed by headquarters rather than operate as autonomous units and that Kalamazoo operations should eventually be folded into the new headquarters. Hassan also won the commitment of the board to concentrate marketing efforts in the United States, where future sales growth was the highest. On announcing these changes and the rationale behind them, Hassan was quoted by the Wall Street Journal as saying “Clearly, we had not developed a strong corporate culture. National cultures should not get in the way of creating the new corporate culture.” The board appeared to be supporting Hassan’s emphasis on the bottom line rather than compromise. Later in the month of October, Pharmacia-Upjohn reported the 20% decline in net income, of which Hassan had earlier warned, and Hassan also revealed more of his restructuring plans. Carrying through on his attempt to increase sales in the United States, Hassan informed investors that 1,200 new sales representatives would be hired to serve the United States market. In an attempt to presage investors about poor earnings for the remainder of 1997, Hassan stated, “(We) . . . have a great deal of work ahead of us to streamline our operations and enhance our competitiveness. We are now putting our resources behind sales and marketing initiatives . . . to drive our sales and earning growth beginning in 1998.” Hassan later described 1997 as the year of repair. Indeed, the markets viewed the firm as in need of repair: the 1997 CAR for Pharmacia-Upjohn was ⫺19.2% and the CAR since the merger had been completed was ⫺33.2%—an improvement since Hassan had joined the firm but still a laggard post-merger performance. After the first quarter of 1998, Hassan’s strategic initiatives seemed to be working effectively. Sales, earnings, and stock price continued to climb. By the year’s end, Pharmacia-Upjohn experienced a 1998 CAR of 42.8%, and the cumulative postmerger CAR was actually now positive in the order of 11.6%. Thus the strategic restructuring Hassan had introduced in 1997 had not only brought the stock price performance of Pharmacia-Upjohn back to a long-term respectable level, but it also had turned Pharmacia-Upjohn into an industry darling and made the merger appear successful when finally integrated. Hassan was even featured in an October 1998 Wall Street Journal article as the engineer of the turnaround at Pharmacia-Upjohn. The cumulative CAR since Hassan had joined the firm in May of 1997 was 48.6%. Discussing the successful turnaround of Pharmacia-Upjohn in his 1998 Letter to Shareholders, Hassan identified seven key strategies that had evolved from the 1997 restructuring that had driven the success of 1998 and would be used as guidelines going forward. These seven strategies were: focusing on core pharmaceutical businesses; focusing on key products and maximizing their full life cycle value (a concentration on newer and promising products); concentrating on high value markets and customers (especially the United States); improving drug pipeline quality, flow, and speed to market; developing excellence in core capabilities (retaining the best management possible); building unity and establishing strong results-oriented accountability (preempting culture clashes); and reducing costs and improving asset utilization. These
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strategic initiatives were accomplished in 1998 as witnessed by the shedding of noncore businesses, an increase in sales in the U.S. market from 32% to 37% of total sales, and a drug pipeline that increased in size as a result of new drugs and that had reduced the “rollout” time for existing drugs. Hassan continued these strategies throughout 1999 with the increased emphasis on the U.S. market that resulted in strong increases in prescription drug sales and an announcement adding other promising drugs to existing brands at Pharmacia-Upjohn with the acquisition of cancer drug maker Sugen. However, Pharmacia-Upjohn made a major announcement on December 19, 1999 that its board had agreed to a $27 billion merger-of-equals with industry peer Monsanto. Although the capital markets reacted most unfavorably to this announcement, the fact that Pharmacia-Upjohn had become strong enough to pursue such a merger as an equal (or, as most analysts described them, the acquirer) given its weak and floundering status just 2 years previously was evidence of a significant turnaround.10 As of year-end 1999 (and the writing of this article), Pharmacia-Upjohn and Monsanto were planning to hold stockholder meetings in March of 2000 to vote on the proposed merger. Before the announcement of the Monsanto merger, Pharmacia-Upjohn had experienced a cumulative postmerger CAR of ⫺4%, because 1999 had resulted in a slight underperformance up to that point. As of year-end 1999 and after news of the Monsanto merger caused a drop in stock price, the cumulative postmerger CAR was ⫺22.6% and the CAR under Hassan’s tenure was 14.4%. 5. Summary and conclusions The merger of Pharmacia-Upjohn presents a case study rich in examples of how to destroy firm value with a merger and the actions that can be taken to counteract such value destruction. What makes this case study especially interesting is the international component involved. In attempting to orchestrate a successful crossborder merger, management must consider not only operating issues, but corporate culture issues as well. As evidenced in the initially poor postmerger performance of Pharmacia-Upjohn, a clear strategy for integration must be established and followed, and the anticipated synergies of a merger are often more difficult to obtain than expected at merger announcement. As in the case of the merger of U.S. banking firms C&S and Sovran Bank, the desire to marry two firms with no significant postmerger changes is often a plan for disaster. Just as the C&S–Sovran decision to maintain both former headquarters and management teams led to their rapid demise and ultimate takeover by NCNB (now Bank of America), the nationalism involved with the merger of European Pharmacia with American Upjohn led to even greater negative synergies. Compromises such as the London headquarters decision and the continentally split governance structure made to pacify both sides of the merged firm led to increases in overhead costs rather than reductions, created communications and information systems problems that delayed critical product launches, and hampered management from pursuing a consistent postmerger integration strategy. The terminated acquisition talks with Allergan serve
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as an example of how the split governance structure led to conflicting interests between senior management and the board of directors. Volvo, as the largest shareholder and having a major presence on the board of directors, blocked the acquisition not because of strategic reasons, but because the accounting treatment required would place limits on their ability to sell their shares. Pure culture clash issues also present problems for the integration of crossborder mergers. In this case, American ignorance of European work and leisure habits created friction between Americans and Europeans over such issues as smoking and drinking wine in the workplace and frustrated Americans with schedule delays resulting from month-long European vacations. Europeans, however, were offended by the American top-down style of management and personal accountability of results. An incomplete understanding of the strength of labor unions in Italy also caused some restructuring plans to be revised. In aggregate, many seemingly minuscule cultural differences between American, Swedish, and Italian firms and employees resulted in frustration and resentment that affected operating performance. All of these issues resulted in the resignation of Pharmacia-Upjohn’s American CEO, a severe underperformance in stock price, and a loss of investor and analyst confidence in the ability of the board of directors to govern the company. Through his turnaround strategy as the new CEO, Fred Hassan demonstrated that crossborder mergers can be successful and that the issues that had first bedeviled Pharmacia-Upjohn could be overcome. As an outsider with vast experience in the pharmaceutical industry, Hassan brought with him the credibility that he was loyal to neither of the former companies. With a clearly defined strategic plan crafted from employee input and with cooperation with the board of directors, Hassan managed finally to integrate Pharmacia and Upjohn and realize some of the earlier-promised synergies. With the support of the board of directors, Hassan was able to overcome the culture clashes and nationalism that had beset his predecessor. By starting with a “clean slate,” Hassan fashioned a new corporate culture for Pharmacia-Upjohn from employee input that enabled him to pursue a wealth-maximizing strategic plan without the territorialism that had previously divided the company and led to value-destroying compromises. Within 18 months of taking over as CEO, Hassan had reversed the headquarters compromise, streamlined operations and management, and had successfully shifted the marketing emphasis of the company to the more lucrative United States market. The stock price reflected this success, turning around a relative postmerger underperformance of nearly 40% to a positive postmerger return over that time. The merger case of Pharmacia-Upjohn brings forth certain factors of success and failure in crossborder mergers. First, international mergers are more susceptible to being problematic than are domestic mergers. Although corporate culture issues certainly may cause problems in a domestic merger, these problems are compounded when national and social cultures also differ. Second, these cultural differences can be detrimental to shareholder wealth if not addressed in the early stages of a merger. Third, major compromises made for the appearances of equality such as the location of headquarters or a split governance structure may lead to an inefficient allocation of human and physical resources. Fourth, effective postmerger leadership can be more
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easily achieved when a new corporate culture is created from the existing corporate and national cultures of the merging firms rather than generating the perception (correct or not) that management has a predisposition for one of the existing cultures. In the case of Pharmacia-Upjohn, this required that an outsider be hired as CEO. As exhibited in this case, international mergers can create shareholder value. However, their success hinges on the more careful consideration of a more comprehensive list of factors than does a domestic merger. Acknowledgments Part of this study was completed while Belcher was a Ph.D. student in Health Services Finance at the University of Alabama at Birmingham. We wish to thank editor Tom Fetherston and Gayle Erwin (the referee) for their comments and suggestions. We also wish to acknowledge the research contribution of Virginia Green to this study. All errors or omissions are the sole responsibility of the authors. Notes 1. Comanor (1986) has provided a detailed literature review of economic issues critical to the pharmaceutical industry. 2. See Zweifel and Breyer (1997, p. 341). 3. See Reekie (1978). 4. Rumored prospective partners included Rhone-Poulenc and Zeneca. 5. This is consistent with the findings of Harris and Ravenscraft (1991) that foreign firms acquire or merge with U.S. firms to gain access to U.S. markets or better research and development facilities—both of which are applicable in this case. 6. Our CAR methodology is similar to that proposed by Barber and Lyon (1997), except that we used an equally weighted industry average return as our control return. This control group consists of American Home Products, Astra-Zeneca, Ares Serono, Bristol-Myers Squibb, Eli Lilly, GlaxoWellcome, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Pfizer, Roche, Sanofi-Synthelabo, Schering-Plough, Smith-Kline Beecham, and Warner-Lambert. All data was obtained from the Reuters 3000 Equities database. 7. Although Hassan was educated in England and was a veteran of the U.S. and Swiss pharmaceutical industry, he claimed that this global perspective gave him even greater credibility with Pharmacia-Upjohn employees according to Wall Street Journal reports. 8. Hassan streamlined senior management almost immediately by reducing the executive committee to eight members from 19 members, bringing in outsiders for five of those eight senior management positions. 9. Headquarters was eventually located in Bridgewater, New Jersey. 10. Monsanto had been in earlier merger talks with American Home Products, but negotiations were terminated and analysts speculated that concerns over
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Monsanto’s agricultural biotechnology business caused American Home Products to cease talks. These same concerns caused investors to punish PharmaciaUpjohn with a CAR of ⫺18.7% between the announcement of the merger and year-end 1999.
References Baily, M. (1972). Research and development costs and returns: the U.S. pharmaceutical industry. Journal of Political Economy 80, 70–85. Barber, B. M., & Lyon, J. (1997). Detecting long-run abnormal stock returns: The empirical power and specification of test statistics. Journal of Financial Economics 43, 341–372. Bradley, M., Desai, A., & Kim, E. H. (1988). Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms. Journal of Financial Economics 21, 3–40. Comanor, W. S. (1986). The political economy of the pharmaceutical industry. Journal of Economic Literature 24, 1178–1217. Harris, R., & Ravenscraft, D. (1991). The role of acquisitions in foreign direct investment: evidence from the U.S. stock market. Journal of Finance 46, 825–844. Reekie, D. (1978). Price and quality competition in the U.S. drug industry. Journal of Industrial Economics 26, 223–237. Maquieira, C., Megginson, W., & Nail, L. (1998). Wealth creation versus redistributions in pure stockfor-stock mergers. Journal of Financial Economics 48, 3–33. Zweifel, P., & Breyer, F. (1997). Health economics. New York: Oxford University Press.
Further reading Burton, T. (1997, April 24). Pharmacia flags at 0 profit drop; stock plunges. Wall Street Journal, p. B17. Burton, T. (1996, July 5). Pharmacia & Upjohn calls off venture for blood substitute, plans write-down. Wall Street Journal, p. B10. Burton, T. (1997, October 14). Pharmacia to move its headquarters to U.S. East Coast. Wall Street Journal, p. B10. Deogun, N., & Langreth, R. (1999, December 17). Pharmacia and Monsanto discuss merger. Wall Street Journal, p. A3. Deogun, N., & Langreth, R. (1999, December 20). Pharmacia-Upjohn, Monsanto boards approve $27 billion merger of equals. Wall Street Journal, p. A3. Frank, R., & Burton, T. (1997, February 4). Cross-border merger results in headaches for a drug company. Wall Street Journal, p. A1. Hymowitz, C. (1999, February 2). How new chief forged one company from two while boosting profit. Wall Street Journal, p. B1. Langreth, R. (1999, December 20). Monsanto merger is just latest of bold moves by Pharmacia CEO. Wall Street Journal, p. A4. Langreth, R. (1999, April 30). Pharmacia-Upjohn net rises on strong prescription drug sales. Wall Street Journal, p. B2. Lipin, S. (1996, May 13). Pharmacia holds talks to buy Allergan. Wall Street Journal, p. A3. Lipin, S., & Henderson, A. (1996, June 17). Volvo plans to cut stake in Pharmacia. Wall Street Journal, p. A3. Lipin, S., & Moore, S. (1996, May 14). Pharmacia-Upjohn’s plans to acquire Allergan Inc. is blocked by AB Volvo. Wall Street Journal, p. A3.
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Lipin, S., Moore, S., & Burton, T. (1995, August 21). Upjohn and Pharmacia sign $6 billion merger. Wall Street Journal, p. A3. Moore, S. (1996, February 23). Pharmacia-Upjohn net fell 78% in 4th quarter on merger costs. Wall Street Journal, p. B4. Moore, S. (1996, May 6). Pharmacia’s profit sinks nearly 80% on hefty charges for Upjohn merger. Wall Street Journal, p. B8. Moore, S. (1997, May 12). Pharmacia-Upjohn chooses Hassan of American Home to be its new CEO. Wall Street Journal, p. B8. Moore, S. (1997, June 2). Amersham in talks with Pharmacia on merging units. Wall Street Journal, p. B6. Moore, S. (1996, August 6). Pharmacia-Upjohn’s net drops 64% on big costs stemming from merger. Wall Street Journal, p. B12. Moore, S. (1997, August 21). Pharmacia names former Volvo chief, Gyll, as chairman in director shuffle. Wall Street Journal, p. B10. Moore, S. (1996, November 1). Pharmacia-Upjohn profit falls 12%; Officials call ’97 estimates too high. Wall Street Journal, p. A3. Moore, S., & Burton, T. (1997, January 21). CEO Zabrinskie quits abruptly at Pharmacia. Wall Street Journal, p. A3. Picardi, L. (1997, June 6). Johnson & Johnson, Pharmacia on merging units. Wall Street Journal, p. B7. Tanouye, E. (1998, October 30). Turnaround becomes a reality at Pharmacia-Upjohn. Wall Street Journal, p. B4.
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Integration problems and turnaround strategies in a cross-border merger A clinical examination of the Pharmacia-Upjohn merger Terry Belchera,b, Lance Nailb,* a
Department of Finance and Accounting, Auburn University at Montgomery, 7300 University Dr., Montgomery, AL 36117–3596, USA b School of Business, University of Alabama at Birmingham, Birmingham, AL 35294, USA
Abstract With the increasing globalization brought about by consolidation, crossborder mergers are growing increasingly popular as means of rapidly achieving size-related economies of scale and scope as well as global reach. However, integration issues such as culture clashes, which are problematic in domestic mergers, are often more severe when the merging companies are headquartered in separate countries with widely differing social mores. This study is an examination of one such merger—the 1995 merger between pharmaceutical companies Upjohn of the United States and Pharmacia of Sweden. The clinical study explores the many initial integration problems experienced in this merger and the turnaround strategy used to counteract the problems. 20002000 Elsevier Science Inc. All rights reserved. JEL classifications: F3, G3 Keywords: Merger; Acquisition; International merger; Culture clash; Corporate integration
1. Introduction On August 20, 1995, the pharmaceutical companies Upjohn, based in the United States, and Pharmacia, based in Sweden, announced a $6⫹ billion merger agreement that resulted in one of the largest crossborder mergers at the time for a U.S. firm. On completion of the merger in November of 1995, the merger-of-equals resulted in * Corresponding author. Tel.: ⫹001-205-934-8860; fax: ⫹001-205-975-4427. E-mail address: [email protected]. 1057-5219/00/$ – see front matter 2000 Elsevier Science Inc. All rights reserved. PII: S1057-5219(00)00034-X
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Pharmacia-Upjohn—the ninth largest pharmaceutical company in the world at that time. of aggregate transaction value, offers a rich case study of the many problematic issues that must be addressed when integrating two formerly independent companies into a single business entity—issues that are further complicated when the firms are domiciled in different countries. Although culture clashes between merging U.S. firms can be quite challenging, these problems are compounded when functional differences exist in societal norms and general business practices between the countries in which the companies are located. In this study, we examined such issues as presented in the merger of Pharmacia and Upjohn. We also analyzed the strategies used to overcome the initial integration problems associated with this merger. The remainder of our paper is organized as follows: section 2 presents the industry conditions that motivated this merger, section 3 outlines the major integration problems initially encountered in the merger, section 4 describes the strategy used to turn around the failed merger, and section 5 concludes.
2. Industry conditions leading to international consolidation U.S. industry conditions were favorable to the merging of Pharmacia and Upjohn at the time of the announcement. Large research-intensive and generic manufacturers alike had argued successfully, slightly more than a decade earlier, against 1962 drug legislation that was aimed at curtailing monopoly profits in the pharmaceutical industry and the subsequent regulatory changes imposed by the Food and Drug Administration. In 1984, new legislation was passed that effectively gave research-intensive and generic manufacturers of drugs what they wanted—relief from intrusive regulation.1 The earlier 1962 drug amendments were conceived and instituted in the wake of the Kefauver Committee’s 1959 investigations into pharmaceutical prices and profits. In the years that followed, the number of drug introductions into the U.S. market declined substantially. In addition, the effective length of time granted to breakthrough products under U.S. patent protection diminished, as more time was spent in regulatory review. Perhaps, more importantly, the regulatory burdens restrained entry of competing manufacturers. Under the old legislation, product innovation was a lengthy process that began years before a final approval for marketing by the Food and Drug Administration. Baily (1972) outlined three clinical research phases necessary for the approval process. The first phase sought to establish the therapeutic efficacy of a trial compound. The second phase sought to resolve the safety of a trial compound for short-term consumption. The third phase sought to conclude the safety of a trial compound for long-term human consumption. The new legislation substantially changed the regulatory landscape. Title I extended the Food and Drug Administration’s use of Abbreviated New Drug applications so that only biological equivalence was the standard for approval instead of defining anew the safety and efficacy of existing compounds. A 3- to 5-year period of exclusive
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marketing was also provided for a new compound, independent of whether the product had obtained patent protection. Title II extended patent protection for up to 5 years with a maximum protection period of 14 years to offset the time consumed during regulatory review. Nevertheless, the 1984 legislation did not directly address the most pertinent social question confronting the industry—whether the benefits from rewards to innovation are more or less important than the rewards from increased competition from lowerpriced competitive products. The 1984 legislation was essentially a political compromise that gave large research-intensive firms a greater incentive to innovate by extending the time available for patent protection and smaller generic firms the opportunity to gain market share through price competition. In the pharmaceutical industry, competitive survival is an artifact of a firm’s ability to innovate successfully. The literature defines three specific operating areas in which innovation improves firm performance.2 Process innovation permits the manufacturing of pharmaceuticals at lower cost by capitalizing on economies of scale. Product innovation permits increased profitability through the discovery and patenting of breakthrough therapeutic compounds. Organizational innovation permits the production of pharmaceuticals at lower cost by capitalizing on economies of scope. Research and development and advertising expenditures are the lifeblood of the pharmaceutical industry. For example, the relative prices of comparable drugs sold by both product innovators and their generic competition supports the strategy to innovate. Innovative drugs sell for a substantial premium over comparable marketed compounds. This price advantage appears to be sustained for a number of years after introduction.3 Eventually, pricing differentials erode as price adjustments occur— reflecting the substitutability of comparable pharmaceutical compounds. The prospect for improved financial performance through a strategy to innovate appears to have been well known by the boards of directors of both Upjohn and Pharmacia. Each sought and eventually merged with a partner that provided an attractive opportunity to innovate their respective processes and organizations. In addition, the turnaround strategy used by the new chief executive officer (CEO) evidences the fact that improved U.S. regulatory conditions were an important factor in the successful marriage of the two firms. Although regulatory and industry factors were significant motivational forces for international consolidation, firm-specific factors also led to the merger between Pharmacia and Upjohn. Upjohn’s research pipeline was weak relative to its industry peers, and patents had recently expired on several of its drugs—including the profitable anxiety drug Xanax. This weakened current and future product line made Upjohn a persistently rumored hostile takeover target. Pharmacia’s management team had sought prospective merger partners in Europe to elevate the firm from second-tier industry participant to major industry competitor.4 However, Volvo and the Swedish government were the two largest shareholders of Pharmacia and exercised their corporate control by refusing to merge with another European pharmaceutical company—searching instead for an American firm offering easier access to the U.S. market.5
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Thus the merger of the two firms seemed to be the ideal defensive merger for two relatively minor players in the pharmaceutical industry—a weak U.S. firm threatened by hostile takeover and a small Swedish firm without significant access to the more profitable U.S. market. After meeting to discuss a joint marketing program in March 1995, the boards of directors of both firms concluded that a merger of the two firms provided a convenient marriage and outlined the transaction details leading up to the August announcement of intent to merge. 3. Short-term culture clashes and integration problems As can be seen in the sequence of events outlined in Table 1 and the cumulative abnormal returns associated with these events in corresponding Figure 1, news of the merger was initially welcomed by the capital markets. Pharmacia shareholders experienced a cumulative abnormal return (CAR) of 7.6% over the 26-day period of 20 days preceding announcement through 5 days after the announcement. Upjohn shareholders experienced a CAR of 3.2% over the same event period.6 Investors positively received the announcement of Upjohn CEO John Zabriskie that the merger would result in a $500 million annual cost savings through a workforce reduction of 4,000 to 4,100 jobs from the combined workforce of nearly 35,000 employees. The merger was designed to be a true international merger-of-equals, with Pharmacia and Upjohn shareholders receiving equal ownership in the newly formed Pharmacia-Upjohn. Board membership was also split equally, with an agreement that the CEO and chairman could not be from the same continent. Thus Upjohn CEO Zabriskie was to become the new CEO and Pharmacia chairman Jan Ekberg was named nonexecutive chairman—a management arrangement hinting that Upjohn management may have the greater influence in the day-to-day operations of the new corporation. The boards and stockholders of both companies approved the merger, and it was completed on November 2, 1995, with trading in the new shares of Pharmacia-Upjohn beginning on November 3, 1995. Sentiment about the merger continued to be strong after the announcement: the weighted-average CAR of Pharmacia and Upjohn was 7.5% from day ⫺20 through merger completion—consistent with the total value gains reported by (Bradley, Desai, and Kim, 1988) and (Maquieira, Megginson, and Nail, 1998). The combined Pharmacia-Upjohn continued to outperform the industry with the capital markets’ continuing expectations of synergy-related cost savings. The CAR of Pharmacia-Upjohn was another 4.8% from the merger completion date until the first combined reporting of earnings on February 22, 1996. Analysts expected the first quarter of reported combined earnings to be much lower than the combined premerger earnings of Pharmacia and Upjohn because of substantial merger costs and initially greeted the news of a 78% drop in earnings as a virtual nonevent, with a negative return of slightly over 1% on the announcement day. However, analysts became increasingly skeptical of the expected cost savings from the merger as more information was disseminated by the company. Little evidence of the planned 4,000 layoffs was exhibited by the company except for an announced termination of 900 jobs in Sweden. Matters worsened when management announced
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Table 1 History of events: Chronological summary of major events relating to the merger of Pharmacia and Upjohn Date
Event
August 20, 1995 November 1, 1995 November 3, 1995 February 22, 1996 March 4, 1996
Pharmacia and Upjohn announce merger agreement Merger approved by all shareholders Merged company trades as Pharmacia-Upjohn Merger restructuring costs cause fourth quarter net income drop of 78% Company announces plan to streamline R&D operations beginning with the sale of Plasma Products with 1995 revenues of $65 million and a workforce of 200. Signals first step in plan to eliminate approximately 25 such R&D facilities. Unexpected merger costs cause first quarter net income drop of 80% Rumors surface that Pharmacia is in talks to acquire therapeutic drug firm Allergan Volvo blocks attempted acquisition of Allergan because of unfavorable tax treatment Company announces plans to redistribute R&D funds from internal development to external research through joint collaborations Volvo announces intent to reduce stake in company by $2 billion Company backs out of blood substitute joint venture and takes $69 million charge Unexpected merger costs cause second quarter net income drop of 64% Company announces third quarter net income drop of 12% and warns that 1997 earnings will be flat CEO John Zabriskie resigns Company announces that fourth quarter earnings are up 500% because of prior year’s charges, but also announces that it will spend $150 million on new product launches rather than the previously anticipated $100 million Company issues another profit warning—this time warning that 1997 earnings will fall below 1996 earnings Company announces plan to improve performance through cost cutting and more efficient asset management Fred Hassan elected Chairman and CEO of Pharmacia-Upjohn Amersham announces that it is pursuing strategic alliances with PharmaciaUpjohn Company engages in a drug brand swap with Johnson & Johnson, giving Pharmacia-Upjohn a stronger presence in growing markets Hassan announces restructuring/turnaround strategic plan Company names Volvo CEO Soeren Gyil as new Chairman Hassan announces plans to move headquarters to U.S. east coast near other large U.S. pharmaceutical companies CEO Hassan announces further restructuring plans Company announces possible sale of nutrition division Company announces earnings in line with analysts’ expectations Wall Street Journal article on the successful turnaround at Pharmacia-Upjohn appears Wall Street Journal article featuring strategy used by Hassan to orchestrate the successful turnaround at Pharmacia-Upjohn appears Company announces intent to acquire Sugen Company announces of intent to merge with Monsanto in a merger of equals
May 3, 1996 May 13, 1996 May 14, 1996 May 22, 1996 June 14, 1996 July 3, 1996 August 5, 1996 October 31, 1996 January 19, 1997 February 26, 1997
April 23, 1997 April 29, 1997 May 10, 1997 May 30, 1997 June 5, 1997 July 2, 1997 August 20, 1997 October 13, 1997 October 30, 1997 November 4, 1997 April 29, 1998 October 30, 1998 February 2, 1999 June 15, 1999 December 19, 1999
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Fig. 1. Cumulative Abnormal Return.
that restructuring costs would be much higher than originally anticipated—rising from original estimate of less than $100 million to a new estimate of between $150 and $175 million. The company attempted to allay investor fears that merger-related savings were not materializing quickly enough with a March 4, 1996 announcement that it would streamline research and development operations—starting with the sale of its Plasma Products division. The sale of this division would eliminate 200 jobs and was the first of approximately 25 research and development facilities planned for sale or closure. The CAR for Pharmacia-Upjohn was ⫺16.1% from the first announcement of combined earnings until the second quarterly report on May 3, 1996. Because the management of Pharmacia-Upjohn had already warned of larger-thanexpected restructuring charges, the 80% decline in earnings announced for the second quarterly report was again greeted with little fanfare by the capital markets—again resulting in a stock price drop of less than 1% at announcement. One-time restructuring charges of $179 million (at the high end of the expected range) were announced, which were the result of termination provisions for 2,600 employees. Thus signs of the promised cuts were finally materializing. However, management also indicated that future restructuring charges were forthcoming. Less than 2 weeks after the earnings announcement, Pharmacia-Upjohn management surprised the capital markets with news that it had been in acquisition talks with therapeutic drug and product manufacturer Allergan. On May 13, 1996 the Wall
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Street Journal reported that rumors indicated that the two firms had been in acquisition talks and that a spike in Allergan’s stock and option volume validated the rumor. Although the eye care products offered by Allergan seemed to be a good complement to the line of ophthalmology drugs offered by Pharmacia-Upjohn, the integration of Pharmacia and Upjohn was far from complete. As one analyst noted, a merger with Allergan would be an attempt to improve earnings through revenue growth, whereas the merger of Pharmacia and Upjohn sought to improve earnings through cost cutting. These talks signaled that earnings growth via cost-cutting measures would be slower than expected and that the management team from Pharmacia-Upjohn was searching for earnings growth from other sources. Management had stated as much to investors with a prior statement that the firm intended to increase earnings through buying businesses rather than reducing earnings via shedding existing businesses. However, detailed analysis of a possible merger between Pharmacia-Upjohn and Allergan was quickly quashed as management confirmed the next day that the two firms had been in acquisition negotiations, but that talks had been terminated because of the objections of the largest shareholder in Pharmacia-Upjohn, AB Volvo. The management of Volvo had previously indicated that it wished to reduce significantly (or completely) its 14% ($2⫹ billion) stake in Pharmacia-Upjohn to concentrate on its core automobile operations. Because a combination with Allergan would have to be accounted for as a pooling-of-interests and would limit Volvo’s ability to sell its shares, Volvo blocked the acquisition talks. This action indicated that Volvo would likely be selling its stake in the company in the near future. Given that Pharmacia-Upjohn was restricted from making major acquisitions as long as Volvo was a major shareholder and held directors seats, management again turned to cost-cutting measures to improve performance. On May 22, 1996, the company announced that it would halt development of approximately 20% of its drugs in the development pipeline and use the savings to explore long-term research collaborations with other firms. Although Volvo announced in June that it was reducing its stake in Pharmacia-Upjohn by roughly $2 billion (from 14% to 3%), management continued to pursue earnings improvement through cost-cutting measures. This continued with the July withdrawal from a strategic alliance with Biopure for the development of a blood substitute. Medical experts had determined that the development of a blood substitute was a very risky venture with a low probability of success, but with a multibillion dollar payoff if successful. Pharmacia-Upjohn (and the predecessor Upjohn) had already spent more than $100 million on the venture and, believing that the risk of continuing the venture was unwarranted, took a $69 million charge to exit the alliance. This charge added to cumulative restructuring charges that had now exceeded revised estimates of $569 million and were now approaching $800 million according to quarterly results released in August—eight times those expected at the time of the merger announcement. Continuing problems at Pharmacia-Upjohn became evident with an October profit warning from management that third-quarter earnings would be lower than expected. Then, with the actual announcement of earnings on October 31, 1996, management cautioned investors that earnings estimates for 1997 were too high and that 1997
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earnings could actually be lower than 1996 earnings. At this point, investors began losing confidence in the management of Pharmacia-Upjohn and punished the stock with 5% drop at announcement, which began a period of stock price performance that severely lagged the industry. By the year’s end, the 1996 CAR for PharmaciaUpjohn was ⫺19.4% and the cumulative postmerger CAR was ⫺17.4%. One source of the problems at Pharmacia-Upjohn surfaced with the sudden and unexpected resignation of CEO Zabriskie on January 19, 1997. Zabriskie’s American style of management had rankled many European subordinates who were unaccustomed to management by directive rather than consensus, and many junior executives and researchers had left the firm because of Zabriskie’s management style and the goals he had established for the company. Zabriskie’s long-term goal was to integrate Pharmacia and Upjohn facilities as quickly as possible to generate cost savings and then to use these savings to finance acquisitions such as the aborted Allergan deal to obtain higher revenue growth. Instead, Zabriskie was hampered by board decisions such as Volvo’s actions to block the acquisition of Allergan as well as the compromise headquarters location of London that Zabriskie was forced to accept. Because the combined company had major operations in the United States, Sweden, and Italy, the board of directors elected to maintain autonomous operations in all three countries with a new headquarters in London to which all three existing centers would report. This arrangement added more overhead to the combined firm and made the task of reducing other overhead costs that much more onerous and was counter to Zabriskie’s long-term goals for the company. Zabriskie’s departure was greeted with a near 7% drop in stock price. Jan Ekberg replaced Zabriskie as CEO on an interim basis and director Richard Brown of Britain’s Cable & Wireless was selected as interim chairman of the board. Further insight into the problems at Pharmacia-Upjohn was outlined in a February 4, 1997 Wall Street Journal article that described many of the culture clash issues and integration problems experienced by this relatively newly merged firm. Aside from language problems and general differences in management style (Americans were hands-on and attempted to hold individuals accountable for their duties, whereas Europeans were more hands-off and team-oriented; Americans were also more confrontational in decision making), many cultural differences such as smoking in the workplace, serving wine with lunch, and standardized vacation times led to conflicts and frustration between American employees and their European counterparts. For example, American managers had scheduled meetings with their European peers for the summer months only to find out that most Swedes vacation the entire month of July and most Italians take the entire month of August for vacation. Thus the Americans’ lack of knowledge of Swedish and Italian leisure customs caused many executivelevel meetings to be delayed by several months. Other cultural differences inhibited management from realizing the synergies expected when the merger was announced. The headquarters compromise created an inefficient bureaucracy whereby managers in London were directing autonomous operations in Michigan, Stockholm, and Milan from afar. Not only did the headquarters decision add to overhead costs, it also resulted in other unexpected costs. Information
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systems between the three centers were not consistent and thus many reporting functions were problematic and led to delays in applications for new drugs and unexpected currency risk exposure. Along the same lines, lack of Italian accounting rules also made obtaining accurate financial information a difficult task. Another impediment to realizing cost savings was the strength and protection of labor unions in Italy, severely limiting the firm’s ability to realize cost savings through layoffs involving the Italian employee base. Despite the negative report in the Wall Street Journal, Ekberg remained confident about the eventual success of the merger, stating “(the merger was) the right thing to do—a move that’s strengthened the two companies. We have to make some smaller changes to release the full power of the two companies.” Ekberg and Brown assured investors that a determined search for a new CEO would result in a person who could lead Pharmacia-Upjohn to success in future years. In the interim, Pharmacia-Upjohn posted fourth-quarter earnings that were in line with revised expectations, but it disappointed investors again with news that expenses related to new product launches would be $150 million rather than the previously expected $100 million. Then, on April 23, 1997, Pharmacia-Upjohn issued yet another profit warning for the quarter— this time because of decreased sales. Investors lost all confidence in the interim management team as costs had not been contained since the merger had been completed and now revenues were declining. The stock price dropped more than 13.5% on the announcement, and the CAR for Pharmacia-Upjohn since the merger was completed was now ⫺41.1%. Ekberg made a statement the next week that management intended to correct the problems of the company by again cutting costs and improving asset management. Pressure was mounting from institutional investors for a new permanent CEO to be named—preferably from outside the existing management team. Investors’ demands were met within 2 weeks with the appointment of Fred Hassan as the new CEO of Pharmacia-Upjohn. The cumulative postmerger CAR for Pharmacia was ⫺37.0% before the announcement of the new CEO. 4. New chief executive officer and turnaround strategy On May 10, 1997, Fred Hassan was brought in from industry rival American Home Products as an outside CEO to turn around the morass that the merger had become. Hassan was a relatively young CEO at 51 years old and had spent his entire career in the pharmaceutical industry—8 years with American Home Products and 17 years with Swiss pharmaceutical company Sandoz before that. During his tenure at American Home Products, Hassan shared responsibility for the integration of the American Cyanamid acquisition. The capital markets liked the match of Hassan’s credentials and the needs of Pharmacia-Upjohn, driving the stock price up nearly 6.5% on the announcement. Ekberg returned to his post of chairman and Brown resumed his duties as a director. Hassan proclaimed that he would have more credibility with all employees of Pharmacia-Upjohn because he was loyal to neither of the former companies nor their management teams and had no geographic ties to either former firm because he was
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born in Pakistan.7 As Hassan told a Wall Street Journal reporter, “(W)hen Company A weds Company B it is important to attract some outside talent,” a philosophy that also carried over to future hiring decisions. Because of the pressures of improved performance demanded by institutional investors, Hassan was forced to develop a turnaround plan in short order to demonstrate that he had a strategic plan for addressing not only the company’s existing problems but also a plan that reached beyond these problems and could turn the company into the top-level international pharmaceutical firm that was promised at the announcement of the merger of Pharmacia and Upjohn. While developing this strategic plan, Hassan did make a couple of small strategic decisions that signaled that he would be pursuing revenue growth as a component of his plan. First, the company disclosed in June that it would engage in a joint venture with Amersham International to create the world’s largest biotechnology supply company. Although negotiations had taken place before Hassan’s arrival, it was ultimately his decision to pursue the alliance with Amersham. Also in June, the company agreed to swap certain drug brands with consumer drug giant Johnson & Johnson. Pharmacia-Upjohn swapped its over-the-counter brands Motrin (pain reliever) and Mycitracin (antibiotic ointment) for the Johnson & Johnson brands of Pediacare (pediatric medicines), Nasalcrom (allergy medication), and Micatin (athlete’s foot treatment). The brand swap gave Johnson & Johnson a strong brand name in an area where they already had strong presence (over-the-counter pain medication) and gave Pharmacia-Upjohn an exit from their weak presence in the pain-medication product line and an immediate foothold in the faster-growth consumer drug segment of pediatric drugs. After 9 weeks in the post of CEO, Hassan issued a profit warning for 1997 along with certain elements of his turnaround plan. Hassan’s approach to turning around the company involved a quickly developed, but patiently crafted, strategic plan that revolved around individual input from senior management in one-on-one meetings and from interaction with employees from on-site visits to company facilities. Hassan’s interaction with employees culminated in the strategic plan that was announced on July 2, 1997. Key components of Hassan’s plan were streamlining operations, fully integrating the former Pharmacia and Upjohn units—especially in geographic terms, and also streamlining management with a heavy mix of outside managers with no ties to either of the former firms.8 A greater marketing and sales concentration in the United States was also listed as a major goal of the new strategic plan. The board of directors disappointed some investors by holding true to its original merger pact and not appointing Hassan as chairman in addition to CEO. Instead, Ekberg stepped down as chairman on August 20, 1997 and resumed the role of director while former Volvo CEO Soeren Gyll was promoted from director to chairman. Some analysts expressed concerns about the governance of the company given their strict adherence to the compromise requirement that the chairman and CEO could not be from the same continent. However, Hassan proved proficient in persuading the board of directors to support his more radical restructuring plans. In October 1997, Hassan convinced the board that the compromise reached concerning headquarters in London should be reversed
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and that headquarters should be located in the Eastern United States, where most of the major pharmaceutical firms were located.9 Also, Hassan succeeded in persuading the board that the centers in Stockholm and Milan should be directed by headquarters rather than operate as autonomous units and that Kalamazoo operations should eventually be folded into the new headquarters. Hassan also won the commitment of the board to concentrate marketing efforts in the United States, where future sales growth was the highest. On announcing these changes and the rationale behind them, Hassan was quoted by the Wall Street Journal as saying “Clearly, we had not developed a strong corporate culture. National cultures should not get in the way of creating the new corporate culture.” The board appeared to be supporting Hassan’s emphasis on the bottom line rather than compromise. Later in the month of October, Pharmacia-Upjohn reported the 20% decline in net income, of which Hassan had earlier warned, and Hassan also revealed more of his restructuring plans. Carrying through on his attempt to increase sales in the United States, Hassan informed investors that 1,200 new sales representatives would be hired to serve the United States market. In an attempt to presage investors about poor earnings for the remainder of 1997, Hassan stated, “(We) . . . have a great deal of work ahead of us to streamline our operations and enhance our competitiveness. We are now putting our resources behind sales and marketing initiatives . . . to drive our sales and earning growth beginning in 1998.” Hassan later described 1997 as the year of repair. Indeed, the markets viewed the firm as in need of repair: the 1997 CAR for Pharmacia-Upjohn was ⫺19.2% and the CAR since the merger had been completed was ⫺33.2%—an improvement since Hassan had joined the firm but still a laggard post-merger performance. After the first quarter of 1998, Hassan’s strategic initiatives seemed to be working effectively. Sales, earnings, and stock price continued to climb. By the year’s end, Pharmacia-Upjohn experienced a 1998 CAR of 42.8%, and the cumulative postmerger CAR was actually now positive in the order of 11.6%. Thus the strategic restructuring Hassan had introduced in 1997 had not only brought the stock price performance of Pharmacia-Upjohn back to a long-term respectable level, but it also had turned Pharmacia-Upjohn into an industry darling and made the merger appear successful when finally integrated. Hassan was even featured in an October 1998 Wall Street Journal article as the engineer of the turnaround at Pharmacia-Upjohn. The cumulative CAR since Hassan had joined the firm in May of 1997 was 48.6%. Discussing the successful turnaround of Pharmacia-Upjohn in his 1998 Letter to Shareholders, Hassan identified seven key strategies that had evolved from the 1997 restructuring that had driven the success of 1998 and would be used as guidelines going forward. These seven strategies were: focusing on core pharmaceutical businesses; focusing on key products and maximizing their full life cycle value (a concentration on newer and promising products); concentrating on high value markets and customers (especially the United States); improving drug pipeline quality, flow, and speed to market; developing excellence in core capabilities (retaining the best management possible); building unity and establishing strong results-oriented accountability (preempting culture clashes); and reducing costs and improving asset utilization. These
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strategic initiatives were accomplished in 1998 as witnessed by the shedding of noncore businesses, an increase in sales in the U.S. market from 32% to 37% of total sales, and a drug pipeline that increased in size as a result of new drugs and that had reduced the “rollout” time for existing drugs. Hassan continued these strategies throughout 1999 with the increased emphasis on the U.S. market that resulted in strong increases in prescription drug sales and an announcement adding other promising drugs to existing brands at Pharmacia-Upjohn with the acquisition of cancer drug maker Sugen. However, Pharmacia-Upjohn made a major announcement on December 19, 1999 that its board had agreed to a $27 billion merger-of-equals with industry peer Monsanto. Although the capital markets reacted most unfavorably to this announcement, the fact that Pharmacia-Upjohn had become strong enough to pursue such a merger as an equal (or, as most analysts described them, the acquirer) given its weak and floundering status just 2 years previously was evidence of a significant turnaround.10 As of year-end 1999 (and the writing of this article), Pharmacia-Upjohn and Monsanto were planning to hold stockholder meetings in March of 2000 to vote on the proposed merger. Before the announcement of the Monsanto merger, Pharmacia-Upjohn had experienced a cumulative postmerger CAR of ⫺4%, because 1999 had resulted in a slight underperformance up to that point. As of year-end 1999 and after news of the Monsanto merger caused a drop in stock price, the cumulative postmerger CAR was ⫺22.6% and the CAR under Hassan’s tenure was 14.4%. 5. Summary and conclusions The merger of Pharmacia-Upjohn presents a case study rich in examples of how to destroy firm value with a merger and the actions that can be taken to counteract such value destruction. What makes this case study especially interesting is the international component involved. In attempting to orchestrate a successful crossborder merger, management must consider not only operating issues, but corporate culture issues as well. As evidenced in the initially poor postmerger performance of Pharmacia-Upjohn, a clear strategy for integration must be established and followed, and the anticipated synergies of a merger are often more difficult to obtain than expected at merger announcement. As in the case of the merger of U.S. banking firms C&S and Sovran Bank, the desire to marry two firms with no significant postmerger changes is often a plan for disaster. Just as the C&S–Sovran decision to maintain both former headquarters and management teams led to their rapid demise and ultimate takeover by NCNB (now Bank of America), the nationalism involved with the merger of European Pharmacia with American Upjohn led to even greater negative synergies. Compromises such as the London headquarters decision and the continentally split governance structure made to pacify both sides of the merged firm led to increases in overhead costs rather than reductions, created communications and information systems problems that delayed critical product launches, and hampered management from pursuing a consistent postmerger integration strategy. The terminated acquisition talks with Allergan serve
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as an example of how the split governance structure led to conflicting interests between senior management and the board of directors. Volvo, as the largest shareholder and having a major presence on the board of directors, blocked the acquisition not because of strategic reasons, but because the accounting treatment required would place limits on their ability to sell their shares. Pure culture clash issues also present problems for the integration of crossborder mergers. In this case, American ignorance of European work and leisure habits created friction between Americans and Europeans over such issues as smoking and drinking wine in the workplace and frustrated Americans with schedule delays resulting from month-long European vacations. Europeans, however, were offended by the American top-down style of management and personal accountability of results. An incomplete understanding of the strength of labor unions in Italy also caused some restructuring plans to be revised. In aggregate, many seemingly minuscule cultural differences between American, Swedish, and Italian firms and employees resulted in frustration and resentment that affected operating performance. All of these issues resulted in the resignation of Pharmacia-Upjohn’s American CEO, a severe underperformance in stock price, and a loss of investor and analyst confidence in the ability of the board of directors to govern the company. Through his turnaround strategy as the new CEO, Fred Hassan demonstrated that crossborder mergers can be successful and that the issues that had first bedeviled Pharmacia-Upjohn could be overcome. As an outsider with vast experience in the pharmaceutical industry, Hassan brought with him the credibility that he was loyal to neither of the former companies. With a clearly defined strategic plan crafted from employee input and with cooperation with the board of directors, Hassan managed finally to integrate Pharmacia and Upjohn and realize some of the earlier-promised synergies. With the support of the board of directors, Hassan was able to overcome the culture clashes and nationalism that had beset his predecessor. By starting with a “clean slate,” Hassan fashioned a new corporate culture for Pharmacia-Upjohn from employee input that enabled him to pursue a wealth-maximizing strategic plan without the territorialism that had previously divided the company and led to value-destroying compromises. Within 18 months of taking over as CEO, Hassan had reversed the headquarters compromise, streamlined operations and management, and had successfully shifted the marketing emphasis of the company to the more lucrative United States market. The stock price reflected this success, turning around a relative postmerger underperformance of nearly 40% to a positive postmerger return over that time. The merger case of Pharmacia-Upjohn brings forth certain factors of success and failure in crossborder mergers. First, international mergers are more susceptible to being problematic than are domestic mergers. Although corporate culture issues certainly may cause problems in a domestic merger, these problems are compounded when national and social cultures also differ. Second, these cultural differences can be detrimental to shareholder wealth if not addressed in the early stages of a merger. Third, major compromises made for the appearances of equality such as the location of headquarters or a split governance structure may lead to an inefficient allocation of human and physical resources. Fourth, effective postmerger leadership can be more
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easily achieved when a new corporate culture is created from the existing corporate and national cultures of the merging firms rather than generating the perception (correct or not) that management has a predisposition for one of the existing cultures. In the case of Pharmacia-Upjohn, this required that an outsider be hired as CEO. As exhibited in this case, international mergers can create shareholder value. However, their success hinges on the more careful consideration of a more comprehensive list of factors than does a domestic merger. Acknowledgments Part of this study was completed while Belcher was a Ph.D. student in Health Services Finance at the University of Alabama at Birmingham. We wish to thank editor Tom Fetherston and Gayle Erwin (the referee) for their comments and suggestions. We also wish to acknowledge the research contribution of Virginia Green to this study. All errors or omissions are the sole responsibility of the authors. Notes 1. Comanor (1986) has provided a detailed literature review of economic issues critical to the pharmaceutical industry. 2. See Zweifel and Breyer (1997, p. 341). 3. See Reekie (1978). 4. Rumored prospective partners included Rhone-Poulenc and Zeneca. 5. This is consistent with the findings of Harris and Ravenscraft (1991) that foreign firms acquire or merge with U.S. firms to gain access to U.S. markets or better research and development facilities—both of which are applicable in this case. 6. Our CAR methodology is similar to that proposed by Barber and Lyon (1997), except that we used an equally weighted industry average return as our control return. This control group consists of American Home Products, Astra-Zeneca, Ares Serono, Bristol-Myers Squibb, Eli Lilly, GlaxoWellcome, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Pfizer, Roche, Sanofi-Synthelabo, Schering-Plough, Smith-Kline Beecham, and Warner-Lambert. All data was obtained from the Reuters 3000 Equities database. 7. Although Hassan was educated in England and was a veteran of the U.S. and Swiss pharmaceutical industry, he claimed that this global perspective gave him even greater credibility with Pharmacia-Upjohn employees according to Wall Street Journal reports. 8. Hassan streamlined senior management almost immediately by reducing the executive committee to eight members from 19 members, bringing in outsiders for five of those eight senior management positions. 9. Headquarters was eventually located in Bridgewater, New Jersey. 10. Monsanto had been in earlier merger talks with American Home Products, but negotiations were terminated and analysts speculated that concerns over
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Monsanto’s agricultural biotechnology business caused American Home Products to cease talks. These same concerns caused investors to punish PharmaciaUpjohn with a CAR of ⫺18.7% between the announcement of the merger and year-end 1999.
References Baily, M. (1972). Research and development costs and returns: the U.S. pharmaceutical industry. Journal of Political Economy 80, 70–85. Barber, B. M., & Lyon, J. (1997). Detecting long-run abnormal stock returns: The empirical power and specification of test statistics. Journal of Financial Economics 43, 341–372. Bradley, M., Desai, A., & Kim, E. H. (1988). Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms. Journal of Financial Economics 21, 3–40. Comanor, W. S. (1986). The political economy of the pharmaceutical industry. Journal of Economic Literature 24, 1178–1217. Harris, R., & Ravenscraft, D. (1991). The role of acquisitions in foreign direct investment: evidence from the U.S. stock market. Journal of Finance 46, 825–844. Reekie, D. (1978). Price and quality competition in the U.S. drug industry. Journal of Industrial Economics 26, 223–237. Maquieira, C., Megginson, W., & Nail, L. (1998). Wealth creation versus redistributions in pure stockfor-stock mergers. Journal of Financial Economics 48, 3–33. Zweifel, P., & Breyer, F. (1997). Health economics. New York: Oxford University Press.
Further reading Burton, T. (1997, April 24). Pharmacia flags at 0 profit drop; stock plunges. Wall Street Journal, p. B17. Burton, T. (1996, July 5). Pharmacia & Upjohn calls off venture for blood substitute, plans write-down. Wall Street Journal, p. B10. Burton, T. (1997, October 14). Pharmacia to move its headquarters to U.S. East Coast. Wall Street Journal, p. B10. Deogun, N., & Langreth, R. (1999, December 17). Pharmacia and Monsanto discuss merger. Wall Street Journal, p. A3. Deogun, N., & Langreth, R. (1999, December 20). Pharmacia-Upjohn, Monsanto boards approve $27 billion merger of equals. Wall Street Journal, p. A3. Frank, R., & Burton, T. (1997, February 4). Cross-border merger results in headaches for a drug company. Wall Street Journal, p. A1. Hymowitz, C. (1999, February 2). How new chief forged one company from two while boosting profit. Wall Street Journal, p. B1. Langreth, R. (1999, December 20). Monsanto merger is just latest of bold moves by Pharmacia CEO. Wall Street Journal, p. A4. Langreth, R. (1999, April 30). Pharmacia-Upjohn net rises on strong prescription drug sales. Wall Street Journal, p. B2. Lipin, S. (1996, May 13). Pharmacia holds talks to buy Allergan. Wall Street Journal, p. A3. Lipin, S., & Henderson, A. (1996, June 17). Volvo plans to cut stake in Pharmacia. Wall Street Journal, p. A3. Lipin, S., & Moore, S. (1996, May 14). Pharmacia-Upjohn’s plans to acquire Allergan Inc. is blocked by AB Volvo. Wall Street Journal, p. A3.
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Lipin, S., Moore, S., & Burton, T. (1995, August 21). Upjohn and Pharmacia sign $6 billion merger. Wall Street Journal, p. A3. Moore, S. (1996, February 23). Pharmacia-Upjohn net fell 78% in 4th quarter on merger costs. Wall Street Journal, p. B4. Moore, S. (1996, May 6). Pharmacia’s profit sinks nearly 80% on hefty charges for Upjohn merger. Wall Street Journal, p. B8. Moore, S. (1997, May 12). Pharmacia-Upjohn chooses Hassan of American Home to be its new CEO. Wall Street Journal, p. B8. Moore, S. (1997, June 2). Amersham in talks with Pharmacia on merging units. Wall Street Journal, p. B6. Moore, S. (1996, August 6). Pharmacia-Upjohn’s net drops 64% on big costs stemming from merger. Wall Street Journal, p. B12. Moore, S. (1997, August 21). Pharmacia names former Volvo chief, Gyll, as chairman in director shuffle. Wall Street Journal, p. B10. Moore, S. (1996, November 1). Pharmacia-Upjohn profit falls 12%; Officials call ’97 estimates too high. Wall Street Journal, p. A3. Moore, S., & Burton, T. (1997, January 21). CEO Zabrinskie quits abruptly at Pharmacia. Wall Street Journal, p. A3. Picardi, L. (1997, June 6). Johnson & Johnson, Pharmacia on merging units. Wall Street Journal, p. B7. Tanouye, E. (1998, October 30). Turnaround becomes a reality at Pharmacia-Upjohn. Wall Street Journal, p. B4.
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