This case study allows us to analyze the implementation of a strategy of merger. Firstly, it permit us to observe what the external factors are that can lead companies to merge, then it highlights the risks inferred internally by such a strategy and lastly it gives us some ideas on how these risks can be managed. Based on that, the plan of our analysis will be the following:
This case study underlines the various aspects inferred by the Sanofi-Aventis merger. In order for us to be able to analyze the benefits and risks of such an operation, a precise and global analysis of the pharmaceutical industry is obligatory.
The pharmaceutical industry is a specific market segment and its analysis is essentially based upon tree distinctive variables: R&D, patents and generic drugs.
This industry rests on the idea of constantly proposing new drugs and treatments in response to population needs. In this sense, Research and development is the base of this activity. As the CEO of the IPSEN Laboratories, Jean Luc Belingard explains, R&D is at the very heart of the matter, it is our very identity. This quote shows well the importance attached to R&D. In fact, a pharmaceutical company's increase in turnover is highly dependent upon its capacity to launch new innovative drugs. If the company wants to grow, it must constantly manufacture and produce new drugs, but this demands constantly higher research costs. According to the Pharmaceutical Research and Manufacturers of America, the average costs of development of a new molecule had raised from $ 138 million in 1975 to $800 million in 2000. This can be explained by the fact that major molecules have already been discovered and today research is aiming to discover even more unknown new molecules in order to create new blockbuster drugs sold throughout the world. As a result of these constantly increasing costs, we may also see that the number of product launches is globally dropping and pharmaceutical companies have much more difficulties in producing new molecules. This increase in production costs is closely linked to the new expensive methods used such as genetics and screening, the drug launch protocols and the integration of product launch costs such as marketing.
[...] Considering the ways the new top management team has been appointed J.F Dehecq personally involved in the job choosing the hundred or so managers who were to head the national subsidiaries.” and the merger has been implemented Dehecq did not use a consulting firm to implement the Franco-German group's integration process” lead us to the same observation: it is more an assimilation process that an integration process. We may understand this strategic choice when reading the following quote: “French stock market company Exane notes: power analysis of the strengths and weaknesses of each group suggests that Sanofi-Synthelabo is in a better position than Aventis given ( . [...]
[...] This brings us to the Sanofi-Aventis merger strategic motives. According to our study on this case and to what has been said above we have extracted 4 main strategic motives to this merger: - Become a global leader going from 17th place to 3rd place worldwide in terms of size by acquiring Aventis (twice the initial size of Sanofi) - Grow and expand internationally in order to counter generic manufacturers - Increase and develop its R&D and innovation capacity by uniting the two groups' competencies - Merge the two companies “pipelines” (the number of drugs in the test phase) in order to increase an already extremely limited number of new product launches Part Stakes of a merger's implementation The pharmaceutical industry market is famous for its worldwide mergers. [...]
[...] Such a measure would have led to the continuous repeating of the idea that the merger is a positive strategy and psychologically speaking this can finally lead employees to become convinced of that and therefore, to act in favor of its success. However, even if the merger is introduced as an integration process, it is not always implemented as such. Based on the report, we can identify two major types of cultural issues: cultural issues related to company's organization or structure and cultural issues related to corporate behavior. [...]
[...] However, a risk of integration is inherent in such R&D merger since there are differences in management style within the laboratory, differences in research policies and budget differences. Also, this merger may lead to the resignation of some talented researchers: “talented researchers leaving”. Cultural risks As we explained before, Sanofi was a small company compared to Aventis and companies' cultures are very different from each other: “Major cultural differences exist”. For instance, organizational structures are completely different. Sanofi is a “hierarchical inward-looking pyramid-shaped organization that is typically French” whereas Aventis had matrix organization”. [...]
[...] Since one of the main reasons for merging is to avoid doubling up on human resources, it is likely that this merger engenders job losses: “This operation carries a risk of between 10,000 and 12,000 job losses employees in France thus live in fear of redundancy”. Job losses will occur at different levels of the staff hierarchy. In other words, workers will not be the only ones to suffer from redundancy: “overlapping administrative jobs will be eliminated ( . ) several manufacturing sites are under examination”. [...]
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