Doc swaps stethoscope for a pounds 50bn briefcase

City & Business

THE MOST remarkable thing about the proposed merger of Sandoz and Ciba-Geigy is not that it is the biggest marriage in corporate history. Nor that it will create the world's 13th biggest company with a market value of pounds 50bn. Nor is it the silly new name, Novartis, cod Latin for "new skills". Nor even that both Swiss companies chose American banks as their lead advisers in preference to their compatriots. And certainly not that 13,000 people will lose their jobs as a result - widespread redundancies are the norm in any drugs merger these days.

No, the really astonishing thing is that the man overseeing the entire process was until eight years ago an ordinary hospital doctor with no business experience whatsoever. Daniel Vasella, chief executive elect of the merged group, was checking pulses and teaching medical students until 1988.

At 35 he decided to jack in the medical profession and have a go at business. He tells me his wife, Anne-Laurence, warned him that if he did not at least give it a try he would always regret it. So he joined Sandoz as a management trainee and was packed off to the States to learn his trade as a sales rep. Now 42, he will be running the third biggest company in Europe, with 130,000 employees, and trying to hammer together two organisations that have been deadly rivals.

It is food for thought for anyone pondering his or her future. Vasella's meteoric rise at Sandoz is proof positive that you can quickly reach the top in one walk of life even after spending 15 years in a very different career.

Will he make a success of the merged company? The signs are encouraging. The fit is snug, the two product lines complement each other. The scope for cost savings is immense - you simply take the axe to the sales force. And the choice of merger (as distinct from takeover) leaves the group financially solid. Shareholders of both companies clearly believe Vasella can do it: the shares rocketed after the announcement, adding pounds 10bn at a stroke to the stock market value of the two companies.

My only reservation is the presentation of the deal as "a merger of equals". Novartis wants to be seen as scrupulously even-handed to both constituent companies. The 16-member board will have eight directors from each company. The four-member board committee has a couple of executives from each side. And the eight-member executive committee comprises four from each. It looks dangerously as though the top management has been appointed under some kind of quota system.

If the merger is to work, the best people need to be favoured, from whichever company. The excess have to be cleared out - as quickly and painlessly as possible. Morale can rapidly deteriorate when managers are fighting for their jobs and the talent, meanwhile, walks.

Ironically, it is the merged group's financial strength that could exacerbate the problem. In takeovers where the predator takes on debt to make the acquisition, the high gearing creates a strong discipline to ruthlessly make the necessary changes. At Novartis, there is no such discipline. Vasella and his colleagues have the luxury of making a mess of this merger.

Market's last orders

WHITHER the markets? Downwards seems a pretty safe short-term bet after Friday's events on Wall Street. Most of the carnage took place after London dealers had left for their weekend retreats. Both bond and equity dealers in Britain will be likely to mark down prices sharply simply to catch up.

Thereafter they will be looking to the US again for guidance on what happens next. Much has been made of the "decoupling" of the UK from the US markets in recent months, but I don't believe London has the backbone to withstand another wave of selling in New York without following suit.

The irony is that the entire episode was triggered by good news - a huge increase in US employment. But it meant that the chances of the Federal Reserve cutting interest rates later this month are virtually zero. The bond market, already in a funk, panicked.

Is this then the end of the bull run? Certainly it is the beginning of the end, and certainly markets will be intensely nervous over the next few days. But I suspect investors will convince themselves that the employment surge was something of an anomaly; every other US indicator points to rather sluggish growth.

The stock market party is almost over. But there is still a large crowd of intoxicated rowdies determined to empty every last bottle. Share prices could yet go higher, but Friday's events are a stern warning that "last orders" is being called.

Reward for failure

INVESTORS are right to protest about the pounds 5m package BET's chief executive John Clark will receive if Rentokil's bid for BET succeeds. It cannot be sensible to reward failure in this way. For if the bid succeeds it will be largely because Mr Clark is deemed to have failed in his five- year effort to turn BET around.

The pounds 5m includes about pounds 3m from a medium-term incentive scheme, pounds 1m of profits from share options and anything up to pounds 1.4m in compensation for loss of office: he is on a pounds 480,000-a-year three-year rolling contract.

The real villains are of course the non-executive directors on the BET remuneration committee, led by Lord Tebbit. They approved the goodies that Mr Clark stands to receive if the bid succeeds. Lord Tebbit's explanation is that it was hard to find suitable candidates for the post in 1991. Moreover, he claims, there was no opposition to the compensation scheme when it was introduced and explained in September 1993.

Investors themselves must bear some responsibility for allowing the scheme to go through unopposed. It is not enough for them to wring their hands after the event. They have to scutinise pay packages as they are created. The time to kick up a stink is past.

But there is one remedy they can still consider: they can vote against the re-election of the non-executive directors responsible. Lord Tebbit may take no notice of one anonymous institutional investor quoted in the Financial Times as saying the affair was "a disgrace". He may prove rather more cautious about waving through juicy pay packages if his own pounds 25,000 director's fee is in jeopardy.

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