View from City Road: Patience may have its reward

It is no surprise that pharmaceuticals and media are the two industries where giants are clashing in gladiatorial combat or linking arms to create new permutations and combinations.

The ground rules in both industries have been changing in dramatic fashion and at record speed. The commercial environment for pharmaceuticals has been altered out of all recognition by the budgetary crackdown on healthcare costs across the developed world, tighter regulation of drugs and growing generic competition.

In the media, market places have begun a rapid convergence. Changing channels of distribution combined with deregulation and technological advances have opened up the opportunity for packaging together once-diverse products from the worlds of publishing, television, telecommunications and computing.

In the pharmaceuticals and media industries there have already been a number of mega-deals to reflect the rapid pace of change and position corporations for the future. In business there is nearly always an advantage in being first. Snooze and you lose. In such a fast-changing world, however, a move that might seem right today could look equally wrong tomorrow.

It may be that pharmaceutical and media companies that choose not to rush in and commit enormous amounts of capital in untried ventures may be the ones that end up on top.

Most of them have been running around like headless chickens over the past year, terrified that if they don't do something, anything, they will miss the boat and be left behind in a fast-changing world. Merck started the panic last year by shelling out dollars 6.7bn for Medco, a so-called pharmaceutical benefit management company, which looks for bulk discounts from drug companies on behalf of an extensive roster of patients.

Opinion is still split on whether this is an act of lunacy or genius but in the meantime most of the other PBMs have been snapped up. SmithKline Beecham, in a copycat move, paid dollars 2bn for Diversified Pharmaceutical Services and Eli Lilly recently beat Glaxo to the post with PCS.

Just as Glaxo was thwarted over PCS so SKB has been shut out of an attempt to swap its vaccine and animal health busineses for Cyanamid's pharmaceutical and healthcare products by a block-busting dollars 8.5bn bid for Cyanamid by American Health Products.

The monster merger mania of the late Eighties, which created companies like AHP and SKB, hardly prepared them better for the present turbulence than those that stuck to their knitting. The laurels in the Nineties may yet go to those that stay their hand. Glaxo, Wellcome and Zeneca, all of which have yet to do anything, are certainly hoping so.