Astra to Assume Management Control of Astra Pharmaceuticals

Strategic Insights -

Astra AB and Merck & Co., Inc. announced a definitive agreement restructuring their 50-50 joint venture, Astra Merck, Inc., into Astra Pharmaceuticals LP, with Astra having management control as the general partner. The combination is expected to create revenue synergies and cost savings, with Astra anticipating $100 million in annual cost savings by 2000. The new entity will be headquartered in Wayne, PA, with production and development facilities in Westborough, MA. Astra expects the restructuring to be accretive to its net earnings from 2000 after initial dilution, while Merck anticipates increased revenue and income from the new arrangement.

Key Takeaways:

  • Astra will assume management control of Astra Pharmaceuticals LP, a new U.S. limited partnership, as the general partner.
  • The combination of Astra Merck and Astra USA is expected to create revenue synergies and cost savings of approximately $100 million annually by 2000.
  • Astra anticipates no reduction in field sales forces, but expects cost savings in other areas.
  • Merck will receive financial consideration through ongoing revenue and income from current and pipeline Astra Merck products, as well as Prilosec and certain Astra USA products.
  • Merck will receive a cash buyout option in 2008, 2012, or 2016, with a minimum value of $4.4 billion.
  • Astra will loan Merck $1.4 billion in cash at closing to facilitate the restructuring.
  • Merck's interest in Prilosec and perprazole will continue until 2017, if combined sales stay above a specified level.
  • Astra Pharmaceuticals will have 1997 sales of approximately $2.7 billion and 3,800 employees.
  • Carl-Gustaf Johansson will be President and CEO of Astra Pharmaceuticals.

Statistics:

  • Astra anticipates $100 million in annual cost savings by 2000.
  • Astra expects the restructuring to be accretive to its net earnings from 2000 after initial dilution.
  • Merck will receive a minimum cash buyout of $4.4 billion in 2008.
  • Astra Pharmaceuticals will have 1997 sales of approximately $2.7 billion.
  • Astra Pharmaceuticals will have 3,800 employees.
  • Prilosec is the best-selling prescription medication in the world.

Sources:

  • Astra AB; Merck & Co., Inc.
  • Astra Form 20-F for the fiscal year ended December 31, 1997.
  • Merck Form 10-K for the fiscal year which ended December 31, 1997.