Outlook: Nice, but what's in it for shareholders?

IF EVER there were a merger born of weakness, AstraZeneca is it. Both are medium-sized players in an industry increasingly dominated by giants. Bringing them together will give the combined whole a better chance of competing in drug discovery, but it is not clear that merging an aging Volvo with a run of the mill rover is going to create the required Ferrari.

Furthermore, both companies face a severe patent expiry problem early in the next century. Perhaps as much as 60 per cent of present sales are affected. Obviously there are replacement products coming through to help fill the hole, but it almost certainly wishful thinking to believe, as Sir David Barnes seems to, that AstraZeneca will soon be challenging Glaxo Wellcome in product development and market reach.

Hakan Mogren, the portly former chocolate factory manager who runs Astra, gets his long sought after passport out of Stockholm (oh how the Swedes do like London) while Percy Barnevik is delivered another management challenge to get his teeth into. And the deal partially solves the problem of management succession at Zeneca. But what's in it for shareholders?

Individually, both companies are just about bite-for the goliaths, but together they are too big to swallow. It can readily be seen that if the merger fails to deliver the promised new force in global pharmaceuticals, it will destroy shareholder value, not create it. Both share prices rose strongly yesterday, but this was less of a thumbs up for the merger as a recognition of the opportunity it creates for others to swoop. We can probably safely rule out Glaxo Wellcome. Much as it would like to take out Zeneca, the scale of the job cuts it would have to push through to make the takeover pay would make it politically unacceptable. But a company such as Roche might be interested in either Zeneca or Astra. Nor would other foreign players have any such qualms over British job losses.

With so many other big mergers in the regulatory mangle, including two other giant pharmaceutical get togethers, this deal could take as long as nine months to clear. That allows plenty of time for rival proposals to come forward.

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