A Tale of Two Mergers

Mergers and acquisitions are not my usual subject on this blog unless I am talking about how they impact the research end of things (or in other words, how many chemists are getting laid off), but a couple of stories in this area have quite a compelling narrative about them. So call me inspired.

My general take on mergers is that they are done by the top level executives to make their bottom lines look better – promises of increased revenues and the accompanied cost savings give the stock price a nice boost, which is handy when they are giving out the annual bonuses. In actual practice, the super-company is not that much more efficient than the old one (if at all), there are issues with combining the two company cultures, and they are often regarded as a bit of a waste of time after the fact, in the process of destroying whatever it was that was special about that place before it got acquired. Recent site closures at some of the big names around the industry will provide some evidence that this is as true now as ever it was. But it is imaginable that a merger or acquisition would provide the smaller entity access to resources they need and the bigger company to a pipeline they need, so a win-win is possible. The two I want to talk about have that property. Well, almost.

The first happened last year, the big company came in and bought up the established biotech but, unlike many of its brethren, left the acquired alone to continue what they were doing. The last has not happened yet (and still may not) but in this case, the big company has a need for new candidates in its pipeline and the smaller company has issues in its manufacturing that a big company could fix. So the big company gets a fixer-upper at a bargain price, puts the manufacturing issues right and we herald a new dawn.

In both cases, the stories are not quite as smooth sailing as that. When Roche bought Genentech last year, a lot were concerned that big changes were coming, but Roche did not interfere too much, at least in any reports I have seen. The massive lay-offs that occurred in other mergers were not as obvious, the list of site closures not announced. But there are problems in paradise; delays in drug approval and of course the rescinding of approval for Avastin for a breast cancer indication. So now cuts are coming, likely to be sales staff and R&D and it is likely to be messy.

You might think that the record of successful takeovers being as it is that Sanofi-Aventis might have thought twice about offering $69 a share for Genzyme. If it was a widely endorsed deal that would get the company back on track again, then perhaps it would be worthwhile pursuing, but Genzyme’s management have committed to fixing the problems that have plagued them and are resisting the overtures. Sanofi have gone public with their offer, which perhaps is to put pressure on management and an attempt to win the hearts and minds of the stockholders rather than coerce the board, which would surely drive up the price. This was supposed to be a fixer-upper after all. It is unclear how this one is going to play out, with predictions coming in that they will eventually settle on a price of around $75 a share and go from there. There is a sort of inevitability about these things, that once the ball is rolling, the acquirer HAS to make the deal and rarely do they just walk away, but if this battle becomes protracted, my question would be why wouldn’t they just walk? After all, they think they can just fix all the problems, but who knows if they really can and maybe it costs a lot more than they expected? Suddenly the great deal becomes rather a white elephant. And then the bloodletting begins. Strangely it is always the sales staff and R&D folks that get it and not the people that made the bad deal, but that is life, I suppose.

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