1. Evaluate the strategic reasoning behind the proposed deal. Evaluate the
financial performance of both companies. Will the deal address the
challenges faced by Upjohn?
Upjohn has a R&D problem. This merger will not directly address this, but will add complementary resources to investigate new treatments and drugs. In particular, Pharmacia's cancer treatment drugs and growth hormone products can overlap with Upjohn's transplant/cancer and steroids departments. The combined R&D capability of the merged entity can better compete against larger rivals.
There are also geographic synergies. Upjohn is weak in Europe--Pharmacia's strongest market. By expanding sales activities into new areas, the combined entity can better capitalize on the increasing expense of developing new drugs and treatments.
2. Interpret the stock market reaction to the deal and the magnitude of the
expected benefits. Are these realistic?
Leading up the deal the stock price of both companies increased steadily, but not excessively. (37-$39 for Upjohn and 23-$25 for Pharmacia) The increase was greater than the S&P 500 over a corresponding period.
3. Can you think of alternative strategies? Evaluate these.
Joint ventures may prove less costly to implement and allow the firms to selectively combine activities in order to achieve mutual cost savings. This is particularly important in R&D and global marketing.
4. If you were a shareholder of Upjohn, would you support this merger?
No. There are better alternatives than a full-on merger. A JV should be investigated first, and if that goes well, a merger should be considered.
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