The birth of Novartis
The birth of Novartis in Basel - with midwives J P Morgan and Morgan Stanley in close attendance - brought whoops of joy from the shareholders of Sandoz and Ciba. No surprise there. Those shareholders can see dramatic cost savings in the offing and have no qualms about the loss of jobs in the pretty northern Swiss town of Basel. A town divided to date solely by the Rhine, there may now be social divisions as well. But no matter. If the pattern at Novartis is anything like the first six post-merger months at Pharmacia & Upjohn, or at Glaxo Wellcome, dramatic cost savings could lead to growth in shareholder value of as much as 70 per cent.
What's more, this massive deal - the biggest in corporate history - has something for everybody. It promises to be just the first in a series of corporate finance deals that will include everyone's current favourites, demergers: Ciba's specialty chemicals business and Sandoz's building chemicals company are both to be sold. And it could well trigger a rash of mergers among other drugs companies - Schering Plough, Eli Lilly, Warner Lambert, Zeneca, Schering and Bayer all look like potential candidates now.
So if everything's coming up roses in the drugs company garden, why does this transaction leave an uneasy feeling? Have we all been affected by Pat Buchanan's rantings about the plight of middle Americans, those victims of the seemingly endless rounds of downsizing - rantings that would probably find an equally receptive audience in virtually any country in the western world?
Will even Wall Street eventually have to accept the logical impossibility of ever more commercial and management manouevres to produce yet another round of dramatic job cuts? And the need to find other, more constructive, ways of increasing shareholder value? After all, if Henry Ford could see the importance of paying enough people enough money to ensure there was a satisfactory market for his and other manufacturers' products, surely our esteemed financial institutions can see it too? For now, they only have eyes for the dollars likely to be generated by the creation of Novartis. But in the end, building business on the basis of relentless reduction of payrolls can only go so far.
Anyway, as drug company names go, Up-Pharm-Schering-Warner-Eli-Zeneca-Novartis doesn't exactly trip off the tongue, does it?T