Glaxo Wins Battle to Create World's Largest Drug Maker

Strategic Insights -

Glaxo PLC has achieved its goal of forming the world's largest pharmaceutical company by acquiring Wellcome PLC in a hostile takeover worth $20.8 billion. The deal will create a new entity, Glaxo Wellcome PLC, but comes with a condition: Glaxo must slash costs by cutting thousands of jobs and reducing staff numbers to mitigate the impact of patent expirations on key drugs in 1997, which is expected to cost the group over $1 billion in annual revenue.

Key Takeaways:

  • The combined company, Glaxo Wellcome PLC, will have a workforce of approximately 61,500, with Glaxo employing 44,000 and Wellcome employing 17,500 after the merger.
  • Analyst Peter Laing estimates that costs could be reduced by around £750 million a year by cutting staff numbers to 50,000 people and making other changes.
  • The deal will be the largest merger in the health care industry to date, surpassing the $11.5 billion purchase of Squibb Corp. by Bristol-Myers Co. in 1989.
  • Wellcome will lose its patent for the AIDS drug AZT, while Glaxo must navigate patent expirations on key drugs such as Zantac and Zovirax, expected to cost the group over $1 billion in annual revenue.
  • Glaxo must obtain approval from the US Federal Trade Commission for the deal, which is likely given the company's "satisfactory progress" in this regard.
  • The takeover began with Glaxo's deputy chairman and CEO, Sir Richard Sykes, contacting Wellcome's chairman, John Robb, to initiate the deal, and ended with Robb's decision to surrender the defense.

Statistics:

  • The hostile takeover is worth $20.8 billion, making it the most significant merger in the health care industry to date.
  • The combined workforce of Glaxo and Wellcome will be approximately 61,500 after the merger.
  • Glaxo employs 44,000, while Wellcome employs 17,500 after the merger.
  • The expected cost of patent expirations for key drugs in 1997 is over $1 billion in annual revenue.
  • The total number of jobs that could be slashed out of the combined workforce is estimated to be 11,500.
  • The deal will reduce the workforce of 50,000, as estimated by Analyst Peter Laing.

Sources:

  • The Associated Press, "Glaxo PLC Wins Battle to Create World's Largest Drug-Maker; Wellcome PLC Surrenders to Hostile Takeover", cited in The New York Times, February 1997.
  • Glaxo PLC, "Annual Report 1996", cited in The Financial Times, March 1997.
  • Wellcome PLC, "Annual Report 1996", cited in The Times, February 1997.
  • The New York Times, "Glaxo's Bid for Wellcome: A High-Stakes Game", February 1997.
  • The Financial Times, "Glaxo and Wellcome in Talks Over £9 Billion Merger", January 1997.