PHARMACEUTICALS: Euro Mergers Continue With Astra-Zeneca
Consolidation fever continues to sweep through the pharmaceutical industry: European drug companies Zeneca Group PLC of Britain and Astra AB of Sweden are expected to unveil a $35 billion merger today, the Wall Street Journal reports. "[T]aking into account" Zeneca's marketing deal with U.S. giant Merck & Co., "the merged companies' annualized drug sales could be between $10 billion and $11 billion, which would make it one of the five biggest global drug companies." When the Journal broke news of the merger yesterday, both companies' stocks soared before trading was suspended pending news from the companies. Astra soared 20%, up $3.625 to $21.875, and Zeneca rose 10%, up $4.25 to $45. Astra markets ulcer medicine Prilosec, the world's best-selling drug, while Zeneca's business is concentrated in cancer medicines. Both companies are strong in anesthetics, respiratory and cardiovascular treatments, but they also share a potentially debilitating strategic weakness: the patents of their top- selling drugs expire in 2001 (Lipin/Moore, 12/9). The New York Times reports the deal will be a merger of equals, and "would divide the key management positions between the two companies" (Morrow, 12/9).
Merck, under the terms of its Zeneca marketing deal, would receive a cash payment of $675 million to $1.5 billion in the event of a merger. It also would receive 50% of Zeneca profits in the U.S. through at least 2008 (Journal, 12/9). Bear Stearns analyst David Molowa predicted that Merck stands to gain a total of $5.6 billion to $6 billion, although "all is subject to negotiations and may be part of the merger talks now" (Ahles, Knight Ridder/Bergen Record, 12/9).
In a related article, the Journal reports that "[a]fter three big drug-industry mergers fell through this year, the conventional wisdom was that pharmaceutical mergers were dead for the balance of 1998. But in recent days that wisdom has been shattered" by deals in Europe between Hoechst AG and Rhone-Poulenc SA, Sanofi SA and Sythelabo, and now Astra and Zeneca. However, industry analysts warn that "lofty" stock prices and CEO personality clashes -- which were at the heart of failed mergers between SmithKline Beecham PLC and American Home Products Corp., SmithKline and Glaxo Wellcome PLC and AHP and Monsanto Co. -- may still provide a cold shower to companies looking to unite. The Journal reports that a growing to desire to crack the lucrative U.S. market is behind the European mergers, possibly leading to one or more of the merged European companies seeking an American partner (Langreth/Moore, 12/9).