Mergers, Acquisitions and Spinoffs

[flatbutt]

The very last job of my career lasted 18 years and involved three corporate entities. SmithKline French, SmithKline Beecham and finally Glaxo SmithKline. I worked in the R&D leg of the OTC Division. We did real healthcare science there, but over my time there I saw divestitures that just didn't make sense to me. Not from a longevity PoV at least.

Just before I retired GSK entered into a joint venture with Novartis that had us taking over their OTC division, but it wasn't a JV as I knew it. One in which two entities combined efforts to launch a new product. Instead we became a new entity, still GSK OTC but not really. There were strategic facility closings that didn't speak to strengthening the division and a nearly 20% headcount reduction. I said at that time it felt like we were being formed into a fatted calf or positioned to be a separate company. I commented that I didn't think we'd exist much beyond 2020 in our current form. I had the chance to git and so I did.

Earlier this year I heard rumblings of yet another JV, this time with GSK and Pfizers OTC. It was similar to the Novartis deal, 68% GSK 32% Pfizer and while I haven't heard about force reduction I did read that the entire division will released as a separate entity by 2022.

The OTC division made most of it's money with a few big products in Oral Care, GI and tobacco cessation products plus handling OTC switches from lapsed NDAs. Plus we got serious R&D funding from Big Papa Rx. In this new form this "fatted calf" will be ripe for poaching, if anyone really wants to deal with OTC at all. Or it may be sold off piecemeal one good product at a time.

I guess I don't have much of a point to make other than to say that it sure does seem that there may well be two or three Big Pharma entities running the whole show one day. How many banks will there be? How many food producers?

I had a good run and I'm grateful for that but there are a lot of young scientists there that may become gig jobbers with PhDs. How do you care for a family like that? My generation is likely the last one to have made a good living with a BS and a bunch of experience.

Was it a Woody Allen movie that posited the notion big business ruled the world, not government?

[wildthing]

Developing drugs is expensive. (You know this of course.)

So is developing cars. (Z4 and Supra.)

[wdfifteen]

If it’s major shareholders manipulating the company to maximize share value at the expense of everything else it wouldn’t be the first time.

[masraum]

Interesting stuff. Things are different today from what they were 50 years ago.

I read this somewhat related article the other day (same article, but on the BBC) and thought it was interesting.

https://www.smithsonianmag.com/science-nature/astonishing-medical-potential-soil-northern-ireland-graveyard-180973741/

It's about a scientist/researcher that's discovered some possible new antibiotics that would work against some of the new superbugs like MRSA. But apparently, there's not much money in that.

The current model for antibiotic development is in shambles. Due to meager profits and regulatory hurdles, legacy drug companies have largely abandoned research in the field, complain scientists confronting this issue. To bring a new drug to market typically requires an enormous outlay of time (10 to 15 years) and money (perhaps even upward of $2 billion). Unlike medications for chronic conditions like cancer or diabetes, most antibiotics are used for relatively short periods and are often curative. That might not matter if prices were high, but they’re kept low throughout the developed and developing worlds, which tamps down incentive for pharmaceutical firms to come up with new agents. Last year alone, three Big Pharma outfits shut down their antibiotic programs. The few that are left—Merck, Pfizer and GlaxoSmithKline—often wind up vying to create compounds for the same infections. Given that bacteria can quickly develop resistance to a new antibiotic, public health experts recommend prescribing as little as possible. “Any new antibiotics must be managed very, very carefully if you want them to be useful, not just now, but in 10 or 20 years time,” Dyson says. “There’s not an appealing business plan for pharmaceutical companies—obviously they want to sell as much as they can within the patented lifetime of that antibiotic. So, in this context, good old capitalism doesn’t necessarily help mankind or our health.”

[KFC911]

I started in R&D (IBM's Advanced Communications Division @RTP), did the big banking gigs during the Pacman daze, then became a hired gun for RJR/Nabisco before I had had enough....my dept was outsourced to a corp that was EVEN worse .

...."and the horse you rode in on"

"Greed is good"? Mebbe not after all the dust settles....not from my perspective.

[Shaun @ Tru6]

Exclusive: Drugmakers from Pfizer to GSK to hike U.S. prices on over 200 drugs

December 31, 2019

NEW YORK (Reuters) - Drugmakers including Pfizer Inc (PFE.N), GlaxoSmithKline PLC (GSK.L) and Sanofi SA (SASY.PA) are planning to hike U.S. list prices on more than 200 drugs in the United States on Wednesday, according to drugmakers and data analyzed by healthcare research firm 3 Axis Advisors.

[jcommin]

For many years, it is easier for a corporation to buy a company with existing technology than try to home grow it.

Many industries have consolidated over the years:

Steel Industry
Airlines
Food
Automotive
Pharma
Retail
Computers

And then there is the investment companines, most notable Warren Buffet, Carl Ichan.

The list is endlless - These coporations part and pacel segments of thier portfolios to enhance shareholder value - That is the name of the game.

Every company I have worked for over my 40+ year career in manufacturing has been either bought/sold/closed/went public/went private.

Todays professionals will re-invent themselves several times over - You just can't stay put -

[legion]

Originally Posted by wdfifteen

If it’s major shareholders manipulating the company to maximize share value at the expense of everything else it wouldn’t be the first time.

Those shareholders are usually hedge funds, mutual funds, and large pensions (like CALPERS). And it's all about "maximizing' shareholder value" for the current quarter at all cost. Future viability be damned. I went to work for a privately held company out of college to avoid this stupidity. Our long time CEO retired a few years ago and the bean counter that replaced him is all about making the same stupid mistakes everyone else does. It used to be you had to work your way up from within, now we are doing layoffs (never done before in almost 100 years), we are hiring VPs straight on from other companies (and they are bringing their extreme short term mindset with them), and those of us at the bottom are having the maximum "value" extracted from us at all costs.

[legion]

BTW, I was a finance major in college and have been tracking M&As since the mid 2000's. I can say with confidence that not a single merger or acquisition made among anything larger than regional players has been a good idea more than six months out. I watched DEC destroy Compaq and Compaq destroy HP. I watched Lucent destroy Bell Labs. Don't even get me started on the banking industry. We'd be much better of as a country with thousands of small banks. News flash, those that are too big to fail will fail some day, and they will take the country with them when they do. Most industries have been allowed to consolidate too much to the point that it hurts consumers as the players have monopolistic or oligopolistic tendencies that crush the small players. Speaking of which, the primary way that big players crush small players is by getting expensive regulations passed that effectively shut out newcomers. Capitalism is strongest when there are many, small, largely indistinguishable players in an industry. Most people wrongly think the corporations and capitalism are the same thing (corporations have become a method for defeating capitalism).

[flatbutt]

Originally Posted by legion

. I went to work for a privately held company out of college .

As did I. I worked for the original Airwick Ind as a control chemist. The owner knew everybody and handed out Christmas bonuses personally. He treated us like family, picnics and parties for us and our immediate relations.Then Ciba Geigy took over and killed off the family.

[Bob Kontak]

Originally Posted by legion

BTW, I was a finance major in college and have been tracking M&As since the mid 2000's.

Off topic. I was an accounting major and auditor. In Caracas doing an audit of my company's outsourced accounting service. Assistant Controller, finance guy, walks me down to a market where I buy fake Mickey Mouse watches for my kids.

All the way he is talking about funding tranches of deals. I am thinking, WTF is a tranche? I just kept my mouth shut.

[sc_rufctr]

Brutal capitalism at its best!
It seems like a lot of top tier companies are borrowing money just to keep going.

If you look at their bottom line they seem to have impressive gross incomes but their dept load is a large percentage of that income.
All they have to do to keep going is to break even which seems to be the norm. Real profit is a distant memory.

The power tool business!!! There's one company based in Hong Kong that now owns most of the brands.
They've been shuffling these power tool companies around for years. I wonder how the people that work for these companies feel.

I've seen a global IT outsourcing company go through the pain of a merger and then the inevitable post merger mass layoffs.
I was one of the people "let go" back in February but the writing was on the wall 18 months before that so I had time to get ready.
1000s have been made redundant and now they have a new CEO who is preparing to spin off 3 tiers of the company.
That leaves 2 core tiers and guess what. After the spin offs they will be smaller than what they were before the merger.
Maybe that was the way it was mean to be for this company? So you have to ask,,, Why did they go through a merger in the first place?

and as always it seems that share holders have short memories.

Meanwhile imagine being one of the execs who has to make these decisions.
... and then that decision turns out to be a bad one.
Most of them work from the moment they wake up until they're back in bed 7 days a week.
They make big money but one decision could mean 500 people are laid off. Do you think I envy them?

[rfuerst911sc]

My career in the defense industry started with GE , that lasted about 2 years then Jack Welch decided to sell the entire defense division to Martin Marrieta . We stayed as MM for a short while and then we merged with Lockheed creating Lockheed Martin . The sale and mergers we were told was to gain synergy/efficiency/right sizing .......... BS

It was a built in excuse to close facilities and lay off workers . Don't get me wrong I am glad I worked there my wife and I both retired from LM . We were paid well , have pensions and 401K's to live off of . But there was so much crap/BS/waste over the years that could have been avoided . Big DOD business is a money eating machine hence why we have the largest DOD budget in the world . If the outsiders would only know how much $$$ is wasted But if the share holders are happy then everyone is happy ........ right

[wdfifteen]

Originally Posted by jcommin

These coporations part and pacel segments of thier portfolios to enhance shareholder value - That is the name of the game.-

Yes. The emphasis is on making money, not making products. We need more scientists, engineers, and inventive “tinkerers” inventing new products and production methods and fewer financiers playing monopoly with real money.

[legion]

Originally Posted by Bob Kontak

Off topic. I was an accounting major and auditor. In Caracas doing an audit of my company's outsourced accounting service. Assistant Controller, finance guy, walks me down to a market where I buy fake Mickey Mouse watches for my kids.

All the way he is talking about funding tranches of deals. I am thinking, WTF is a tranche? I just kept my mouth shut.

In some complicated bond issues, bonds can be divided into "tranches". If the company defaults and its assets are sold off to pay bondholders, the first tranche gets paid first, the second tranche gets paid second, and so on until the money runs out. Bondholders in the first tranche accept lower rates as they are first in line and in theory have lower risk. Bondholders in the next tranche are paid higher rates and so on.

It's all a bunch of BS in my opinion as when most companies get into trouble they declare bankruptcy, reorganize, and the bondholders get nothing or very little. In reality that debt is secured with management's willingness to repay it, which they will revoke at will.

[legion]

Originally Posted by wdfifteen

Yes. The emphasis is on making money, not making products. We need more scientists, engineers, and inventive “tinkerers” inventing new products and production methods and fewer financiers playing monopoly with real money.

To illustrate the shift in mentality...

As late as the 1980s (before the introduction of the PC), IBM used to have sales quotas. These quotas were notorious for being easy to achieve as they were designed to guarantee IBM steady, long-term income. They usually left some money on the table for next year. (IIRC, Ross Perot was a salesman for IBM and would achieve his quota early in the year and spent the rest of his time building EDS.)

Between leveraged buyouts in the 80's and "activist" investors today, that world is dead.

[KFC911]

Lots of brutal truth in this thread....

Rockford made a movie about my last rodeo, then taxpayers bailed out two more...

Greed is good

[wdfifteen]

I’ve mentioned this book here before, but if you want to see a case study in what greed can do to a company and its community read Glass House by Brian Alexander. The company was Anchor Hocking and the town is Lancaster, Ohio. It’s a heartbreaking read.

[wayner]

I think in many industries, the low hanging fruit of innovation has been picked. My Pharma clients in the US were all squeezing their labs for cost reduction since it seems so hard (and almost rare) to make any sort of discoveries these days compared to two decades ago.

On another thought, I'm fed up with American companies buying Canadian companies, then discovering that while there are profits they are not high enough to be worthwhile and then moving back out of Canada having destroyed a vital supplier to Canadian consumers.

We will see if the same fate befalls Beaver Lumber/Rona in the wake of Lowes

[LWJ]

After my employer was purchased and my income was slashed 45%, I went to a competitor.

They nosedived into endless layoffs and I had to reinvent myself.

Item one on the list - work for a small, private company. One where they knew my value.

I did that in 2004 and never looked back. Own a small piece today and will retire or die there. Hopefully, retire!