Upjohn and Pharmacia agree to merge

Upjohn and Pharmacia agree to merge

In the latest round of mergers sweeping the global drug industry, Upjohn Co. and Swedish pharmaceutical manufacturer Pharmacia AB have announced a tax-free stock swap valued at close to $6 billion.

The friendly transaction, carefully designed to produce a “merger of equal” results in a a new company, Pharmacia & Upjohn Inc. to be headquartered in London, the ninth largest drug maker worldwide with annual sales of $7 billion.

Shareholders of Upjohn will receive 1.45 shares of the new company, while Pharmacia shareholders will receive one a of the new company, which will have 504 million shares outstanding.

As a result of the deal, Pharmacia & Upjohn Inc. will be better positioned to sell enormous quantities of pharmaceuticals to HMOs and other organizations which purchase medicines on behalf of thousands of patients. Upjohn’s most familiar prescription drugs include Motrin, an analgesic, Cleocin, an antibiotic, and Depo-provera, a contraceptive. Pharmacia’s hallmark products include Genotropin, a growth hormone and Adriamycin, an anti-cancer drug. In addition, the new company will also have a formidable $1 billion war chest for creating new drugs.

“One of the things is going on,” says John Zabriskie, the new president and the CEO of Pharmacia & Upjohn, “is that he people who me making decisions about drugs to be used are no longer just physicians, but HMOs and administrators, people who manage coverage for millions and millions of patients. They are deciding which drugs will be used and therefore the more diverse your product line, the greater your competitive strength.”

Today, more than ever before corporations in the banking and electric-power industries are combining as a hedge against competitors and the pharmaceutical industry is no exception. For some time now, it has been undergoing rapid consolidation as drug manufacturers seek partners or targets to divide the expense of keeping pipelines full of new drugs which have the distribution strength to market products around the world. Most major players would agree with Zabriskie who adds, “Success requires strong global coverage and separately we did not have enough.”

Based on recent transactions, it was only a matter of time before the Upjohn-Pharmacia merger took place. The majority of those pharmaceutical companies that are bigger, such as Merck & Company, Bristol-Myers Squibb and American Home Products, for example, became that way in the past two years due to mergers, with one company purchasing another.

However, unlike some mammoth mergers who participants we deep-pocketed titans such as Roche Holding Ltd., Glaxo PLC or Hoechst AC, this is yet another deal between second-tier companies scurrying to hang on to a piece of the $200 billion-a-year-pharmaceutical market.

Kalamazoo-based Upjohn was attracted to Pharmacia’s hefty distribution network in Europe, and Pharmada was also arduous to penetrate a new market–in this case the US. According to Jami Rubin, an analyst at Schroder Wertheim & Co, the merger permits Pharmacia to take advantage of Upjohn’s relatively large sales force and widespread distribution channels in the US. “It certainly makes sense. Like Upjohn, Pharmacia is a weaker pharmaceutical company.

The proposed deal has been portrayed as a defensive move by both companies. According to insiders, Pharmacia had discussed possible mergers with several European companies including Rhone-Poulenc Rorer and Zeneca PLC. But the talks evaporated when the Swedish government which owns 14.1% of the company and Volvo which owns 27.5%, were unwilling to cede control.

Indeed, the is still an outside chance a white knight could come in and make a bid for one of the two companies. Possible acquirers could include Zeneca or other European companies such as Bayer AG, according to analysts. Other possible candidates might include Bristol-Myers Squibb Co. and Schering-Plough Corp.

The deal still faces a few obstacles including approval by shareholders of bath companies. As a case in point, 90% of the shareholders of Pharmacia must approve the transaction though an exchange of stock. In addition, the transaction will have to receive approval from a majority of Upjohn shareholders. Morgan Stanley & Co. was financial adviser to Pharmacia, while Upjohn was advised by Goldman, Sachs & Co.

Copyright Quality Services Company Aug 28, 1995

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