Profit and Value Creation in Pharmaceutical Industry Cross-Border Mergers

Abstract

Over the past ten years many industries have experienced a wave of mergers and acquisitions. The enthusiasm in consolidation is based on the belief that gains can accumulate through expense reduction, increased market power, and scale of economies. Whether or not a merged company achieves the expected performance is the critical question. Measuring the success of a merger depends on several factors, including which aspect of postmerger performance being measured and how success or failure is defined. In this thesis, we attempt to investigate and evaluate the impact of mergers on corporate performance and stock prices by studying cases of two erstwhile Sweden based pharmaceutical companies. It is our intention to examine any changes in the firms' profitability and overall financial performance from premerger through to postmerger periods and find out if the mergers created or destroyed shareholder value. Generally, the standard financial measures in our cases gave positive results. Sales, key ratios and other performance measures showed an increasing trend. Share prices of AstraZeneca showed an increasing trend thoughout the periods, while that of PharmaciaUpjohn was u-shaped. Dividends paid to Swedish shareholders increased significantly in both merger cases.

We recommend further research using other measures of performance than those we have used.