Corporate Profile: The arranged marriage

The Odd Couple

Zeneca was a young company, demerged from Imperial Chemical Industries in 1993. Most of its leading products - Zentril, cancer drug Nolvadex and heart drug Tenormin - were on the market. City wags said the firm's odd name sounded like a Japanese camera, or a laxative.

Astra started in 1913, founded by Swedish scientists and guided since by the legendary Wallenburg family. The first money-spinner was Xylocaine, in 1948, followed by Losec, now the world's most widely sold drug. Astra's turnover eventually made up 20 per cent of Sweden's

current account balance.

Mergers are like marriages. Some, like BP and Amoco, are passionate and impulsive: love at first sight, a short courtship and straight down the aisle. Others, like British Aerospace and GEC Marconi, are mundane affairs realised only after years of endless meetings and pressure from friends and family.

The third category of corporate wedding is more rare: two shy lovers, who have been eyeing each other for years but never had the courage to talk until the day fate or desperation lends them the strength to break the deadlock.

The merger between Zeneca, the UK drug giant, and Astra, its Swedish rival, to form AstraZeneca, is an example of the marriage of the shy. The pounds 48bn all-share tie-up, approved by Zeneca shareholders last week and to be ratified by Astra investors next month, had long been mooted by industry experts as the solution to the companies' problems.

City wisdom considered a merger would provide the two medium-sized players with the critical mass and the financial muscle to compete with the UK and US giants which dominate the global drug industry.

But Sir David Barnes, the chief executive of Zeneca, was a passionate advocate of the UK company's go-it-alone strategy, and - apart from a brief flirt in 1996 - the two groups seemed determined to retain their independence.

That position changed last summer, when Astra announced plans to break free of a joint venture with the US pharmaceutical giant Merck. That meant the Swedish group could regain control of all US sales of its anti-ulcer blockbuster Losec, the world's best-selling drug, which accounts for half of Astra's sales.

The end of the joint venture unleashed a chain of events which culminated in December's announcement of the AstraZeneca merger. With the whole of Losec's US revenues set to end up in Astra's coffers, the Swedish group suddenly became a much more attractive merger proposition, and Zeneca was quick to spot the opportunity.

A deal was given added urgency by the impending expiries of patents on the companies' key products. A week before the public announcement of the termination of the Merck deal, Sir David met Hakan Mogren, his Swedish counterpart, for an informal chat.

In August, they started merger talks. Four months later, Sir David and Mr Mogren stood on a glitzy platform in a brewery-turned-conference centre in the City of London to mark the end of Astra's and Zeneca's independence.

One look at the figures leaves little doubt about the reasons for the merger: AstraZeneca is all about size. With pounds 10bn in annual sales and more than 40,000 employees, the combined group will be the third largest pure pharmaceutical company in the world, behind Merck of the US and Glaxo Wellcome of the UK.

It will also be a stockmarket powerhouse with a market value of pounds 48bn and a place in the blue-chip indexes of London, New York and Stockholm. And the merger will give AstraZeneca the strength to fight its rivals in the cut-throat world of drug discovery. Given the unique nature of the pharmaceutical market, which enables companies to patent products and gain a monopoly for long periods, firms are spending more on research and development hoping to find a blockbuster drug.

At around $1.9bn, AstraZeneca's R&D budget will be the third largest in the industry and will give the Anglo-Swedish group a powerful weapon in the quest for new drugs. Both salesforces will help push the merged companies' products, led by the star drugs Losec and Zestril, Zeneca's hypertension treatment. But questions remain over the cultural and managerial fit between the groups. The pharmaceutical industry has seen several financially sound mergers collapse or run into difficulties due to clash of personalities and cultures, including the marriage between Glaxo Wellcome and its UK peer SmithKline Beecham, and the link-up between the latter and American Home Products of the US. Perhaps the more worrying precedent for AstraZeneca is the 1996 merger between Pharmacia and Upjohn. In that case, the collision of the Anglo-Saxon and Scandinavian corporate cultures transformed the combined board into a snakepit of infighting which severely tainted the company's trading performance.

Although Sir David is a firm believer that Swedish temperament and culture are much closer to Britain than to the US, he would agree that the AstraZeneca board throws together four widely different characters.

The contrast between Sir David and Mr Mogren, the two deputy executive chairmen, could not be more marked. The Zeneca man is a lean aristocrat, with silky diplomatic skills honed during nearly 30 years of the City. Mr Mogren is a well-built, imposing six-footer with untidy hair. His penchant for opera, food and wine and his knack for upsetting analysts and press have made him a controversial figure in the Swedish establishment.

The contrasting styles will have to be brought together by Tom McKillop, the chief executive-designate. Dr McKillop, a scientist who was a student radical in the 1968 Paris uprising, cut his managerial teeth as head of Zeneca's pharmaceutical operations. A gritty Scot with a passion for carpentry, Dr McKillop dismisses fears of a clash of personalities. "I get on very well with Mogren." he says. "We are both Francofiles, we both like opera and our wives get on well."

But much of the hope for a smooth corporate life at AstraZeneca rests with the chairman, Percy Barnevik, the legendary Swedish industrialist. Mr Barnevik's position in the merger is heavily interwoven with that of the Wallenberg family, Sweden's most powerful corporate dynasty and Astra's largest shareholder. He is famous for his corporate theory based on the "three Ps" - purpose, processes and people - a philosophy that he will try to apply to AstraZeneca.

Astra has grown steadily since its birth in 1913 under the guiding hand of the Wallenbergs. Thanks to Xylocaine, an anaesthetic discovered in 1948 which was its first money-spinner, and the hugely successful Losec, Astra is now one of the cornerstones of Swedish capitalism, accounting for some 20 per cent of the country's current account balance.

Zeneca's history as an independent company dates from 1993 when its was spun off from Imperial Chemical Industries, the chemical giant.

By then, most of its leading products - including Zestril, the cancer drug Nolvadex and the heart drug Tenormin - were already on the market. The only problem was the company's somewhat outlandish name, with one insider recalling that the initial public reaction was to associate Zeneca with a Japanese camera or a laxative. Since the float, Zeneca's drug portfolio has changed little and the UK group, just like Astra, has focused on growing its existing products.

Ironically, this dependence on a small number of drugs is the enlarged group's key problem. Both Losec and Zestril start losing patent protection in 2001, hitting revenue in 2002 and 2003. Dr McKillop believes the group can cushion the blow with the $1.1bn of merger savings, including 6,000 redundancies, by licensing new drugs.

The new products should fuel growth after 2003. The earnings would come from 3 clinical areas where Astra and Zeneca overlap - respiratory, cardiovascular and anaesthetic, and by building on Astra's strength in gastrointestinal drugs and on Zeneca's franchise in cancer treatments.

"I believe most of the earnings forecasts are unduly pessimistic," says Dr McKillop.

"There is no reason why, after managing the 2002-2003 period, we cannot resume very strong growth by exploiting our outstanding R&D base".

The Key Figures In The New Company

Percy Barnevik, non-executive chairman. The 58-year-old Swede is widely regarded as one of Europe's premier industrialists. In 1988, he masterminded the merger of Sweden's ABB and Switzerland's Brown Boveri to create the industrial giant ABB. In 1997, Mr Barnevik became chairman of Investor, which controls 43 per cent of the Swedish stock market with stakes in blue chips such as ABB, SAAB, Electrolux and Astra. He is famous for the "Barnevik triple jump" technique of unlocking shareholder value: restructure the business, change the management, engineer a merger or disposal.

Sir David Barnes CBE, joint executive deputy chairman. He joined Imperial Chemical Industries Pharmaceuticals in 1957. In 1971, he became ICI's youngest director. In 1993, he was named chief executive of Zeneca when the company was demerged from ICI.

Hakan Mogren, joint executive deputy chairman, 55. Studied at the Royal Institute of Technology in Stockholm, graduating in 1969 and obtaining a doctorate in biotechnology in 1974. After a stint at Maribou, Sweden's top chocolate maker, he was appointed president and chief executive of Astra in 1988. He is also a director of Investor and a member of Sweden's Gastronomic Academy.

Tom McKillop, chief executive. He studied at Glasgow University where he obtained a first class degree and a PhD in chemistry. In 1969, he joined ICI's research laboratory. Appointed chief executive officer of Zeneca Pharmaceuticals in 1994, he became an executive director two years later. The 55-year-old is also a non-executive director of Lloyds TSB, the high- street bank, and the healthcare group Nycomed Amersham.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Guru Careers: .NET Developer / Web Developer

£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence