BOOTS and ALLIANCE in talks over 7.5bn merger - Essay Example

REPORT on the BOOTS and ALLIANCE in talks over £7.5bn MERGER Introduction Recently, there were some reports in the press that BOOTS, a prominent pharmaceutical chain in Europe with it’s headquarters in the UK, was in advanced stage of talks over a £7.5 billion merger with Alliance UniChem, a wholesale drug business firm; in a deal that would provide the high street retailer with its long-sought after platform for international expansion. The new firm is henceforth said to be addressed as “Alliance Boots”. The purpose of this report is to identify and analyze the potential operational needs of the combined organization upon merger, using appropriate theory, by focusing in the area of ‘Operational Processes’. Brief Description of the History of the Companies The bigger of the two companies, which are proceeding towards a merger, is called BOOTS. BOOTS Healthcare International is a £4.4bn Pharmaceutical retailing chain, which boasts of drug retailing in five major European countries. It is known to have 1400 pharmacy outlets in the UK alone. Mr. Richard Baker and Mr. Nigel Rudd who are the chief executive and the chairman respectively head BOOTS. The other company, which is inching towards the deal, is Alliance UniChem, which has an estimated market worth of nearly £3.2bn. The company conducts extensive wholesale operations all over the UK, Netherlands, Norway & Italy in the field of Drug Trade with the presence of nearly upto 1200 pharmacies throughout these countries. However, the major difference between the two of them is their scope and geographical area of operations. BOOTS Healthcare maintains larger sized stores in high street locations while Alliance outlets operate as Community pharmacies in local markets. Mr. Stephano Pessina who currently owns a 32% stake in the company heads Alliance UniChem. The Merger Both the companies are beset with their individual characteristic problems. This has been showed as an analysis by many websites, which deal with the stock market and Economics in general. Over the last one year, the de-regulation of the market in the Pharmaceutical Sector has resulted in a stiffer competition in the high street market among retailing companies. Companies and Supermarkets now have the liberty to set up in-store pharmacies, which poses a danger to key pharmaceutical players like BOOTS and Alliance. In an analysis published in biotech-info.net- “Due to the softening of rules and the law, BOOTS is facing stiff competition from other pharmaceutical retailing majors such as TESCO, which enjoyed and continues to enjoy a place of dominance and monopoly in the market”. Tougher competition from the supermarkets has forced Mr. Baker of BOOTS to cut the price of his products in an attempt to prop up the so far lukewarm sales, although this has put some further pressure on the profit and operating margins. As such, both the firms have decided that it is time to join hands in order to compete effectively in the market and also to improve upon their current individual deficiencies. The present deal is expected to give the new firm an industry share of nearly upto 20%. But the present deal has been met with a lot of speculation especially from the institutional shareholders who generally regard such nil-premium mergers with skepticism. The companies therefore intend to seek support for the deal by outlining the capacity of the new merged outfit’s capacity to generate significant cost and purchasing synergies and boost margins. The company ascertains that it would be in a better position to handle the competition faced by it from TESCO. The company also proposes to start smoking and weight-loss clinics and creating beauty parlors in the group’s stores throughout Europe. The Shareholders, however, remain unconvinced. Recommendations of the Report The present report focuses on the impact that the merger will have on the operational processes of the new company and also aims to identify the operational needs of the company for enforcing any proposed changes in the new operational strategy. The best people to advice in this regard would be Gary A Dymski (1997) and Richard S Gallagher (2001). The report explains about various recommendations on what I believe to be the best way forward for the new company’s operations. All these recommendations are made in terms of operational theory The companies that are inching towards a merger must have ample faith in each other and must be aware of every party’s strengths and deficiencies. This necessitates the need for a series of interactions among the top bracket and the management wings of all the companies involved in the merger. KIRK H. HOFFMAN(1995) stresses that the approach to any such merger will be a combination of past experiences, forward thinking, and observation during any merger such as the one currently in progress between BOOTS Healthcare International and Alliance UniChem to become “Alliance Boots”. The first and the major step towards the integration of the two companies should primarily involve assessing the current state of each department of the companies involved in the merger as has been professed by James C. Freund(1999). This step is very imporatant so that common departments could be integrated and the underperforming and unnecessary ones can be removed without blowing more holes into the revenues of the firm. This step must necessarily include examining the physical aspects of each department, including physical location in terms of buildings presently owned by each company as also the professional setup (ie, the overall qualification, experience and experience of the workforce of the business etc.) as all the assets that are supposed to be owned by the combined organization in the future. The new merged company must, henceforth, have knowledge of the assets owned by it and should be competent enough to utilise them as and when necessary. Other important aspects that need to be carefully studied by every company involved in the merger is to study the functions and responsibilities of each department of the new organization , the individual/department workload, and the amount of workflow within the department of the organization. In addition to the above mentioned procedure, Colleen M. Culley(2003) suggests that collection of the organization's standard operating procedures may prove to be beneficial. The current budget of the organization could be a prime consideration for this step. Other information collected in this step would be the resources available to the department, the number and kinds of drugs handled by each organization etc. All the above elements will be important considerations for the establishment of each of the new integrated departments and should be completely assessed prior to any joint integration & orientation meetings between the managements of the firms involved in the merger. The next course of action is for a preliminary integration meeting between the directors and members of designated upper management teams of the concerned companies. The goals of these meetings are to enable each individual firm to have an assessment of the current assets, operational capabilities of the other firms involved, the future operational needs of the combined organization and then determine the best operational practices of the integrated organization. The general topics for the series of discussions that take place in such a scenario would include assessment of areas during the intra-departmental review within the organization as discussed above, including human resources, workflow processes, resources, and technology. Human resources, according to Dennis C. Carey (2001) and also Teresa A Daniel and Gary S Metcalf (2001,p.280), would be one of the major discussion points in terms of the every organization’s capabilities, functions and responsibilities. The scope of the organization will determine a fair amount of its functions and responsibilities. The people involved in the meeting need to assess how each firm is currently involved with handling activities such as supply chain management, wholesale and retail management, Share and the stock market and other functions in the company. Department workflow and resources are other key point that need ample consideration and review. Establishing the structure of each integrated department will be the next step in the merger process. This step will involve alignment of the department with the best practice models determined in the previous step of the merging process. Based on the projected call volume for the department and the product line focus of the company, a projected human resource structure and number is estimated for the department needs, including a director, managers, technical heads, specialists and administrative support. Outsourcing organizations should be evaluated for department needs, including call centers, specialists, and triage. Robert F. Bruner and Joseph R. Perella (2004) state ”The Budget for each integrated Department of the merged firm would be a major step in any merging process”. The projected budget should encompass the projected expenses for all best practices and the organizational structure of the department, including salaries, Shipments, outsourcing contracts, maintaining outlets,references , supplies, advanced training courses for personnel, travel expenses, and technology (computers and Web services for telemedicine etc.). In order to allow for an efficient integration of the businesses involved, a timeline outlining integration and transition activities should be created. According to Farmer KC, Gumbhir AK.(1993), Transition activities are typical of the medical information department of any Pharmaceutical firm and should be categorized according to where in the department responsibility for the activity will lie. Suggested divisions would include administrative responsibilities, document transfer, and personnel training. A timeline document should be developed which divides each activity to be performed by the site originating the information and the site receiving the information as a function of the estimated time needed for integration (typically six months or one year). The director of the firm and designated upper management of the new combined firm perform administrative responsibilities. During the integration process, the standard operating procedures for the integrated organization should be written and signed. The physical floor plan of the new organization should be assessed and a layout for efficient workflow should be established, considering all available resources, functions and technicalities. Any requirements that arise must be analyzed and the needful should be done for fulfilling the requirement. Typical requirements include shifting locations for outlets or procuring new furniture and equipments, assigning contracts to new 3rd party firms for specific needs etc. The director should solicit contract bids from outsourcing organizations for previously established needs, such as after hours coverage and staffing of retail and wholesale outlets. Staffing represents one of the rate limiting steps to the integration process and one of the most important functions for the director and the human resource wing. The director must assess and do the needful to establish job descriptions, and interview, train and hire new personnel if necessary. A final step for the director would be to formally declare the formation of the new company after the merger so that the shareholders as well as the public in general become aware of the new company. This helps the company as its share over the market increases and therefore if the merger works in the direction of the public sentiment, then it could do wonders to the revenues of the company. As a future course of action after the formation of the new company which is to be known as ‘Alliance BOOTS’, the new firm must ensure that all the shareholders are assured of the safety of their investment and the stability of the future of the new firm. According to Nelson Carter (1998, p. 349-355), a major advantage of a merger involving companies like the ones under consideration presently, would be that the new firm would now be able to cater to an enlarged audience; which in this case would be the high street end as well as the local markets, which would then enable it to compete with other key players in the market. The new company must function in such a way that it succeeds in posting healthy margins and this can only be possible if the general public is aware of the merger, a view which is supported by Vladimir Popov(2003). The firm must take the nitiative of instilling the faith among the populace by selling them the products at prices lower than the current retail rates. This is possible under the new firm because it now has a capability of dealing even with wholesale supplies and as such the new company can cut down the intermediary procurement costs and therefore sell the pharma products at relatively lower retail prices. Therefore, this move is assured to give other companies many sleepless nights and ensure Alliance BOOTS higher profit margins. In short, this can be attributed to what Peter L. Molloy(2004) had quoted- “ The acceptance of any change wrests in the hands of the consumer. It is sometimes as sweet as honey but if you were to neglect the consumer’s interest, then it would simply prove to be a scorpion’s kiss”. Another possible extension to the scope of Alliance BOOTS’ activities is in the area of Pharmaceutical Research as cited by J D Kleinke (2001). This is possible because this new company is worth nearly £7.5bn. The company must set up state of the art laboratories for pharmaceuticals & drug research in areas such as HIV, Parkinson’s disease, etc. Any breakthrough in such a research would ensure complete dominance of Alliance BOOTS over the global market for that particular medicine. CONCLUSION This report provides an realistic paper view of the merging process of two major pharmaceutical firms namely BOOTS and Alliance UniChem. There is currently no literature available to support these views. Astepwise process, such as this one, may be useful as a brainstorming tool during the merger of key market players in the field of Pharmaceutical and drug retailing. As current and future mergers are completed, future readers of this report are encouraged to share their experiences in the literature and other appropriate forums possibly through the web. REFERENCES 1) Farmer KC, Gumbhir AK. (1993, p.37-57) “Acquisition value factors for US pharmaceutical firms in a merger environment. J Res Pharma”.Dallas:Prentice Hall. 2) KIRK H. HOFFMAN (1995) A Historical perspective on medical Retailing. London:Klein. 3) By James C. Freund (1999) Anatomy of a Merger: Strategies and Techniques for Negotiating corporateAcquisitions, 3rd ed. London: Macmillan. 4) By Robert F. Bruner and Joseph R. Perella (2004) Applied Mergers and Acquisition. Michigan: John Wiley. 5) J D Kleinke (2001) Bleeding Edge: The Business of Health Care in the New Century”. Singapore: Wiley Eastern. 6) ”Copyright Drug Information Association Oct-Dec 2000 “ - Provided by ProQuest Information and Learning Company. All rights Reserved 6) Dennis C Carey (2001) The Human Side of M & A: How CEOs Leverage the Most Important Asset in Deal Making. New York: Dayton Ogden. 7) Teresa A Daniel and Gary S Metcalf (2001) The Management of People in Mergers and Acquisitions. Delhi: Eastern economy. 8) Vladimir Popov (2003), Mega-mergers in the pharmaceutical industry: In whose interest? . London:ALW. 9) Romana Slavik (2000), Medical Communications Meeting,a paper presented in March 13, 2000, Washington, District of Columbia . 10) Dave M. Callaghan (2003), Merger Remedies in American and European Union Competition law. London: Oxford University Press. 11) United States Congress House Committee on Energy and Commerce Subcommittee on Fossil and Synthetic Fuels (1982), Mobil-Marathon and Similar Oil Company Mergers. San Diego. 12) Nelson Carter (1998), Pharmacoecon. New York: New Age publications. 13) COLLEEN M. CULLEY (2003), PHARMD Medical retailing Resident, Aventis b Pharmaceuticals Inc, Kansas City, Missouri. London: Prentice hall, 2003. 14) Colleen M. Culley (2000), Reprint address. University of Pittsburgh Drug Information Center, 137 Victoria Hall, 200 Lothrop St., Pittsburgh. 15) Peter L Molloy (2004), Scorpion's Kiss. London: Adage Pub. 16) Peter A Hunt (2004), Structuring Mergers & Acquisitions: A Guide to Creating Shareholder Value. New York: Prentice Hall. 17) Gary A Dymski (2003), The Bank Merger Wave: The Economic Causes and Social Consequences of Financial Consolidation. New York: McGraw Hill 18) Naomi Lamoreaux (1998), The Great Merger Movement in American Business, 1895-1904. Boston: Prentice Hall. 19) Richard S Gallagher (2001), The Soul of an Organization. Singapore: Wiley Eastern. 20) http://www.about-business.org/Business-Reports.php 21) Www.biotech-info.net/pharma_merge.html 22) Www.cognitiveliberty.org/news/pfizer_pharmacia_merger. htm. 23) www.getbestinfo.com 24) Www.ivax.com/jsps/about/press_center.jsp?Story Index=7 25) Www.nybooks.com/articles/17244 26) Www.reportSURE.com 27) Www.sciencemag.org/cgi/content/full/287/5460/1952 28) Wisegeek.com Read More