Merger between Pfizer Pharmaceuticals and Warner-lambert: organization changes and challenges arising - Business Essay Example

 

 

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1.0 INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Change is a continuous and stable factor that is inevitable in organization’s operations and development leading to success. In contemporary business world, for organizations to thrive and compete favourably with their counterparts it requires that they operate strategies that is effective in meeting set objectives and also that these organizations have a consolidated and solidified financial base, highly skilled manpower and the ability to seize up available business opportunities. In order that this status is attained, many organizations have resolved to corporate marriages. Business merger is an avenue that organizations use in capitalization build up and in enjoying the advantages associated with large financial base corporations. According to Huck and Konrad (2004:107), a temporary overvaluation of own stock or an undervaluation of the target firm might make acquisition attractive. A second set of motivations are synergies that include complementarities in production or marketing, economies of scale, improvements in risk characteristics or financial constraints, or tax advantages. A third set of motives include asymmetric competence, or a perception of superior own competence on the part of the management of the acquiring firm, or empire building. Fourth, the effects of merger and acquisition on market concentration and market power considerations play a major role.

The noticeable occurrences after a merger or acquisition include, among others, change of management, the introduction of strange organizational cultures and strategies, change in environment of operations and the change in management of the married organizations. All these changes tend to affect and position the way the organization’s human resource operate and the effectiveness of its management. If the process of merger and acquisition is not handled properly the resultant effect is to affect the productivity level of the workers and management effectiveness; as some employees may not want to be connected with the merger and acquisition, because of the perceived fear to job security and changes in normal process of operations.

This project tends to evaluate the effect of management change in a merger and acquisition environment on human resource and management effectiveness. A case study of Pfizer a multinational pharmaceutical company based with headquarters in New York, and Warner-Lambert Pharmaceutical Company had its base in Morris Plains, New Jersey.  Pfizer was established in the 1950s in different countries including Belgium, United Kingdom, Canada, Brazil, Cuba, Mexico, Puerto Rico, Turkey and Iran.  The merger of these two companies which process commenced in 1998 took place in 2000. In the merger deal, Pfizer the acquiring company, exchanged 2.75 shares of its common stock for each outstanding share of Warner-Lambert stock, in a tax-free transaction valued at $98.31 per share (Warner-Lambert’s), or $90 billion, based on Pfizer’s closing price of $35.75, as at February 4th 2000 (Sancton 2000). The two companies were the leading global companies in the pharmaceutical industry. There merger brought about the formation of a force in the industry that has potentials to maintain a significant stand in the pharmaceutical industry. Pfizer being a multinational corporation that operates in many countries in Europe needed the approval of the European Union to make this merger legalized. The European Commission granted the approval of these companies to merge in May 2000 (Gump, 2000). The combination of the two world-class organizations is aimed at creating the World’s fastest growing, major pharmaceutical company (Sancton 2000).

1.2 PERSONAL VIEW ON THE CHOSEN TOPIC

The case study (Pfizer and Warner-Lambert) is a major merger case that took place in the wake of the 21st century. It case becomes very interesting to research as the companies operate in the same pharmaceutical industry. However, they operate in different countries across America, Europe and African continents. The diversity in corporate cultures is an identified factor; given their cross borders operations and adopted environmental differences in areas of operations. The merger process is to strengthen further the already major players in the global pharmaceutical industry. The corporate marriage has brought about the birth of a corporation that is a reckoning force and a major player in the global pharmaceutical industry.

1.3   OBJECTIVES OF THE STUDY

The objectives that this research study tends to achieve include the following:

i. To recommend ways in which change in management in merger and acquisition environment should be managed and make more effective in organization development rather than being dysfunctional and conflict reddened.

ii. Proffer solutions on how human resource in the merged organizations can be managed in such a way that would alley their fears and give them the immediate and future security of operating in their full capacities and potentials.

iii. To determine those variables associated with a change management that tends to inhibit or promote the smooth operations of the emerged organization, especially in organizations with difference in corporate cultures.

iv. To determine the best environment set up a business and those necessary considerations to put in place before embarking on a merger deal.

v. To determine the role organizational culture and strategies play in the successful outcome of management in a change merger/acquisition environment.

1.4   SIGNIFICANCE OF THE STUDY

This study is significant in the sense that:

i.  It would enable managers who operates in a merger/acquisition environment know the best way to manage their human resources in order to create the most conducive environment for workers to thrive and be more effective.

ii. The study would make known those factors to be considered before initiating a corporate merger, in order to make the process a successful one.

iii. The study would add to the body of knowledge for further research on the same field of study.

iv. Workers of merger/acquired organizations tend to know how the change in management tends to affect them and what ways to operate in order that they would cope and be more efficient in effectively meeting the organization’s objectives, hence developing themselves.

v.    Stakeholders in merger/ acquisition are equipped with the facts of their actions and the consequences on the human resource and managerial effectiveness in the organization. They tend to act in a pattern that would make it non-dysfunctional and create an environment to encourage efficient management and development of human resource.

1.5   RESEARCH HYPOTHESES

The hypothesis for this study is

HA: Organizational cultural diversity from difference in business climates breeds dysfunctional change consequences which affects  management for organizations engaged in cross borders mergers\acquisitions.

1.6   SCOPE AND LIMITATIONS TO THE STUDY

The project would cover integration processes adopted in Pfizer and Warner-Lambert Company. The implementation processes and the situation in the environment of change management as it affects on the merged organization.

1.7.1 LITERATURE REVIEW

The rational view dictates that the merger of two companies is undertaken to achieve one or more strategic objectives in the business plan of the acquiring company. “Many business objectives can potentially be delivered by the creation of strategic alliances or by the expansion and diversification of the company rather than by merger. The bottom line is that a merger must achieve added value” (Field & peck, 2003:744). Managers of company due to their considerable power may have their own motives for advocating merger activity. For many managers the opportunity to increase their power, status and salary will be a function of the size of the company and thus they may have a vested interest in empire building (ibid). A firm acquires or merges with another for the same reason. “It is the desire to improve a firm’s potentials profitability through the use of or sharing of another firm’s expertise” (Deck& Nevaer).

Implementation of merger processes involves several phases. Of these phases, Obsidian (2005), “three important phases in a merger were identified: the run- up period; the immediate transition covering the first six months; and the longer term integration of the two organizations”. The need to properly handle the merger/acquisition processes is germane for the successful outcome of the programme. Wall & Wall (2000:143), see the integration planning and implementation stages as the crucial stages which things begin to fall apart rather quickly if not properly handled, after the deal is sealed.

There are grave implications from poorly managed merger implementation. According to Obsidian (2005), “A mishandled merger can lead to the loss of people- the vulnerable asset that often constitutes the market value that attracted the purchaser in the first place. Employees’ performance can fall sharply if senior decision makers do not take account of their emotional responses at the outset”. Human resource management and other managerial problems may arise when new parties can become involve once the cooperative venture begins to be implemented. Along with the executives who have been in charge of the negotiations, other people now participate who are going to work together with the members of another organization. These people can be a threat to the agreement reached by the top management for a series of reasons:

1.      The people who have not taken part in the negotiations may not be well- informed about the corporate strategy, and therefore may not feel as attracted by it as the top management is.

2.      lower- ranked employees may be less cosmopolitan than top managers and less experience at working with people from other cultures

3.      generally only a few professionals dedicate themselves to cooperation full- time, whereas most of the executives and employees are evaluated according to the results of their activity in their respective firms, and therefore cannot comply with their duties in the alliance properly

4.      there are people  who oppose the relationship especially in firms with very independence business units or  when professional groups exist that have interests that differs from those of the organization as a whole. (Kanter, 1994:104. cited in Lajara & Lillo, 2002)

According to Deck & Navaer (1990:73), factors that are common to merger, acquisition, and alliance activities that must be considered include such as power struggles between the firms, a clash of corporate cultures, organizational and re-organizational issues, the effects of a new corporate direction, and entry into new or unfamiliar markets. It thus, become necessary to restructure the acquired firm and to merge the two  distinct corporate, cultures into one .Also, with an acquisition comes unique problems and the requirement fro unique strategies necessary to make the acquisition a success (ibid:117)

Writing on the human impact of merger, Abbasi, et al (1991), have it that, the corporate takeover binge of the 1980’s has proven again that mergers are powerful occurrences with the potential of having a devastating effects on employees and others affected by such transactions. Some of these people trauma produced by takeovers include:

 

1. Real and poignant issues that affect workers are not given scant attention, this results in employee feeling that the psychological contract through their career has broken down by the corporate takeover and the human dislocation that followed it.

2. Conflict between the purchasing firm and the purchased firm can have a serious negative human capital impact and detrimental organizational implications. This may come as the diversity between organizational cultures. A clash of cultures sometimes resulted in a blood bath of restructuring, organization malaise, and shattered morale for both retained and departed workers, sagging productivity, and declining profitability.

3. The treat of takeovers caused the management of many companies to devise strategies to ward of potentials raiders. This put many companies in a sluggish, reactive mode because it meant more time being spent with lawyers, investment bankers, and public relations firms.

4. An acquisition can imperil not only jobs but also the future security of those who stay.

5. A negative tone pervades the organization where the news of takeover of their company looms over their head.

6. Workers who fear a takeover or who are involved in a takeover may waste huge amounts of time in defensive and negative emotions.

 

Giving the difficulty of identifying, a priori, the organizational compatibility between two firms, it can be convenient to use some specific procedures to predict whether the relationship might work. One might assess whether each company’s personnel feel at ease in mutual discussions during the negotiation stage. Working informally with another company before formalizing a strategic alliance, normally for non-related product or markets in which there is no direct competition, can also represent a good way to asses the level of compatibility and its potentials evolution (Lajara, et al, 2002)

1.7.2 THEORETICAL FRAMEWORK
The theoretical framework that would be adopted for this research work is the Dynamics of Paradigm Change model. The need to manage the changes brought by mergers  and acquisition in the emerged corporate after the corporate merger is very important to making the merger successful. The Dynamics Paradigm Change model looks at the cycle of strategic drift. How changes occur in the course of adopting a given strategy. Given a scenario where a market is required to innovative product by organization, because of changes, the organization has the option to simply modify its existing products or go for another entirely new product, thereby abandoning the existing products. In this instance, “change at any level is most effective when consistent with the paradigm. The paradigm should be reappraised regularly to ensure that it reflects the organization’s mission” (Harding & Long, 2001). In this theoretical model, there is the encouragement of managers of business to embrace a continual reappraisal to the paradigm of the organization. Here, it is ensured that all changes are considered in the concept of the recipe. The recipe or paradigm involve an adopted strategy may be changed by a set of dynamic processes. The basic assumption underlying this theory is that managers resist strategic change that requires changing the paradigm itself. When faced with a need for strategic change- say, because of declining performance – they prefer incremental changes that do not involve changing the paradigm (ibid).

The diagram below (Table 2) illustrate the cycle involves in dynamics of paradigm change. There are four phases of cycle of dynamics of paradigm change: the paradigm phase, Development of strategy phase, Implementation phase, and corporate performance assessment phase. In addition, there are three major steps involve in the management making decision regards with approach to take. The decision to be taken depends on the stage or phase of strategy implementation. For instance, at the phase of corporate performance assessment in regards to a given policy, the management has three basic decisions to make at this instance: to tighten its control in strategy implementation, to reconstruct or develop new strategy or to entirely abandon the strategy and go for a new one.

 

 

 

 

 

 

 

 

DYNAMICS OF PARADIGM CHANGE

 

 

 

 

 

 
Table 2
The elements involve in the paradigm or recipe involve key beliefs ad assumptions forming part of an organization’s culture
Step 1: Faced with declining performance or any stimulus for action for example, managers may first tighten controls.
Step 2: If procedural controls are not effective, they may then reconstruct or develop a new strategy, but in line with the existing paradigm.
Step 3: As a last resort that may seek to change the recipe or paradigm itself.

In applying dynamics of paradigm change model, it is seen that it encourages managers to reappraise continually the paradigm of the organization. It ensures that all changes are considered in the context of the recipe. Thus, the model helps to prevent strategic drift caused through failure to keep pace with environmental change. Furthermore, the model ensures that required change is identified at the appropriate level –for example, relocation rather than a refurbishment of existing accommodation (ibid).

IMPORTANCE OF THE LITERATURE REVIEW TO THE STUDY

The literature review gives the research study the needed background and conceptualization of relating terms to the study. Furthermore, the theoretical background on which the study is built is drawn from the review of the literatures. Thus, the literature review stands a guide in the direction the study would take, and a source for the generation of secondary data for the study.

1.8   RESEARCH METHODOLOGY

RESEARCH METHOD

The survey research method would be adopted in the conducting of this research study. Here, the use of questionnaires alongside with interviews online would be used in drawing data to be analyzed for the study. A survey research design entails the collection of data from a targeted population and thus, carrying out a deductive conclusion based on the analyses of those generated data from the sampled population.

RATIONALES FOR THE CHOSEN RESEARCH DESIGN

Since the mergers of corporate organizations affect the workers and the internal environment where they work, the survey design is the right tool in analyzing research pattern to social and management issues. “Survey design does more than merely uncover data. They interpret, synthesis and integrate these data and point to implications and interrelationship” (Bankole, 2003:15). Since the subject matter for this study is a social issue that affects a large group and the generality of people, the survey research method becomes most feasible and more appropriate in the conduct of the study.

SOURCE OF DATA COLLECTION

Both primary and secondary data would be utilized for the study. The primary data would be derived through self-administered questionnaires and interviews. The secondary data would be gotten from journals, textbooks, internet materials, newspapers and magazines articles.

TOTAL POPULATION AND SAMPLE SIZE

The workers and stakeholders of the case study would constitute the total population, i.e. members of the Pfizer- Warner-Lambert company. The sample size to which data would be drawn would be 100, out of the total workforce and other stakeholders in the organization. The sample would be drawn from the different categorizes of staffers in the organization. i.e. top level managers, middle level managers, bottom level staffers.

SAMPLING METHOD

The simple random sampling method would be utilized in sample collection. In this case, every members of the organization would have equal chance of being included in the sample. Questionnaires would be mailed to corporate headquarters of the company, and the returned answered questionnaires would form the collected samples for the study.

DATA ANALYSIS INSTRUMENT

Both quantitative and qualitative methods would be use in analyzing the data for the study. Chi- square (X2) , alongside with simple percentage would be  statistically use in the quantitative analysis, while the qualitative analysis would entails comparing the findings from the research with findings of previous scholars.

The quantitative analysis method would be use for the analysis of the data for the study. Chi-square (X2) would be used in testing the r e search questions. The formula for the chi-square (x2) is:

X2 = (O-E) 2

E

 

Where ‘O’ represent the observed frequency

‘E ‘ represents the expected frequency.

The decision rule for the chi- square (X2) include:

 

1. Accept the null hypothesis (h0), when the calculated value of X2 is lesser than the table value of X2. Hence, reject the alternate hypothesis (H1).

2.  Reject the null hypothesis (H0), when the calculated value of X2 is greater than the table value of X2. Hence, accept the alternate hypothesis (H1).

3. The findings of the research study would be derived based on the conclusion reached from the statistical analysis carried out.

 

DATA COLLECTION TOOL

The questionnaires would contain two sections. Sections A, would have the bio-data of the respondents, while section B would have questions relating to the study and the research questions. The questionnaires would be sent through e-mail and postal mail to reach wide areas and prevent the restriction of selecting the respondents to a particular area. This would also save cost of reaching respondents in distant areas. The choice of choosing questionnaire as an instrument for data collection boils to the fact that it would allow for ease in data collection and position the respondent in a calm atmosphere, devoid of threat and victimization when giving answers to the questions. Also would be secrecy and protection of respondent privacy when questionnaires are administered. Linkert 5 scale measurement would be used to grade the answers given b y the respondents. Below are the grade apportioned to each answer given

Options                       Apportioned score

Strongly agree                       5

Agree                                     4

Uncertain                               3

Disagree                                 2

Strongly disagree                   1

The secondary data would be used in deriving data and comparing previous findings and drawing conclusions for the study. The secondary data would be derived from journals, textbooks, newspapers articles, Internet materials and government gazettes.

SAMPLE OF QUESTIONS IN THE RESEARCH QUESTIONNAIRE

1. Sex of respondent (a) Male           (b) Female

2. Age of respondent (a) 15- 25 yrs            (b) 26- 35 yrs            (c) 36-45 yrs          (d) 46-55 yrs          (e) 56 yrs- above

3. Number of work Experience (a) 1-10 yrs           (b) 11-20 yrs            (c) 21 yrs-above

4. Organizational cultural diversity breeds dysfunctional consequences in a change management operating in a merger/acquisition environment (a) Strongly agree      (b) Agree          (c) Uncertain           (d) Disagree            (e) Strongly disagree

5. There is a high successful rate merger of organizations operating within same business climates than those engaged in cross borders mergers.

(a) Strongly agree         (b) Agree        (c) Uncertain        (d) Disagree        (e) Strongly disagree

 

ANTICIPATED PROBLEMS

i. The inadequate time available to concentrate fully on this project work, resulting from the researcher’s time-sharing with other personal and other academic and personal activities.

ii. The difficulties involve in sourcing data and materials for the project of this sort   would be very exhausting. Sometimes this is made very impossible where management for the project respondents refuses to give out information regarding their operations.

iii. A project of this sort requires  financial commitment in data sourcing, materials collation, typesetting, contacting source of data collection, subscription to libraries etc. this constitute a limitation in the sense that other personal needs also demands attention.

iv. The fact that merger and acquisition takes many processes before its successful completion; this make the resultant consequences from this change may not be very visible for the organization under study for the period of the conduct of the research study.

A DISCUSSION OF THE ANTICIPATED OUTCOMES OF THE RESEARCH
The basic general assumption people have on business merger includes the following:
It is assumed that business merger would make the merged companies to have financial, material and managerial increase to enable it competes favourably with its competitors.
It is also assumed that merger would result to the lost of jobs because of the restructuring that will take place in the merged organization.
It is also believed that merger and takeovers tend to have psychological effects on the workers, this may dislocate and make them put up defensive behaviour to the work.
In line with the above highlighted assumptions on merger, the research tends to focus more on the results and findings it will derive form its data analysis and findings from the research. Thus, the assumption would be relegated to the background as the research work proceeds. Comparison would be done after the research findings are uncovered.

IMPORTANT MILESTONES

The data for the research would not be falsified. A bias-free interpretation and conclusion would be ensured in the conduct of this study. Furthermore, the privacy of the respondents for the study would be respected.

KEY DATES

The construction, administering of the research questionnaire will be done 2nd to 3rd week in May, 2008
The Collection of questionnaires from respondents, and data analyses would be completed between the 4th week of May and the 1st week in June 2008.
The compilation of the literature review and other sections of the research work would be concluded between June and last week in July 2008.
BIBLIOGRAPHY

Abbasi, Sami M., et al (1991), “Merger Mania: Human and Economic Effects” in review of Business Vol. 13, No. 1-2.

Deck, S.A. & Nevaer, L.E.V. (1990), Strategic Corporate Alliances: A Study of the present, a Model for the Future. New York: Quorum Books.

Field, J. & Peck, E. (2003), “Merger and Acquisition in the Private Sector: What Are the lessons for Health and Social Services?” in Social Policy 7 Administration Vol. 37, No. 7. December

Fugate, Mel, et al (2002), “Coping with an Organizational Merger over Four Stages” in personnel Psychology Vol. 55, No.4

Gump, Warren (2000) “Warner-Lambert, Pfizer Complete Merger” http://www.nd.edu/~tschaefe/Courses/M&A/Case%20Files/Pfizer-WarnerLambert.doc. (03/05/08)

Hosking, Patrick (1999), “Merger Mania and Short memories”. In New Statesman. Vol. 128, No. 4450. August 23.

Huck, Steffen & Kourad, Kai, A. (2004), “Merger Profitability and Trade Policy” in Scandinavian Journal of Economics 106(1).

Katz, Mitchell J. (2000) “FTC Orders Clears Way for $90 Billion Merger of Pfizer Inc. and Warner-Lambert Company”  http://www.ftc.gov/opa/reporters.shtm (03/05/08)

Kiymaz, H. & Mukherjee, T.K. (2000), “The Impact of Country Diversification on Wealth Effects in Cross- Border Mergers” in The Financial review 35.

Lajara, Bartolome M. et al (2002), “The Role of Human resource management in the Corporative Strategy process” in Human resource Planning Vol. 25, No.2.

Mitchell, Mark, et al (2004), “Price Pressure around Merger” in The Journal of Finance Vol. LIX, No.1. February

O’Rourke, R. W. & Berg, B.R. (2005), “Avoiding Costly benefits Bloopers in Mergers and Acquisitions” in Employee Benefit Plan Review. July

Obsidian, Phoenix (2005), “Mergers & Acquisitions” http://www.facilitation.co.uk/change_mergers.html (15/08/05)

Ravenscraft, D. J. & Scherer, F. M. (1987), Mergers, Sell-Offs and Economic Efficiency. Washington, DC: The Brookings Institution.

Sancton, Don (2000), “Pfizer and Warner-Lambert Agree to $90 Billion Merger Creating the World’s Fastest-Growing Major Pharmaceutical Company” Pfizer Canada Inc, February 07 http://www.pfizer.ca/english/newsroom/press%20releases/default.asp?s=1&year=2000&releaseID=29 (03/05/08)

Sourcemedia (2005), “SDC Worldwide Mergers & Acquisition” In Mergers & Acquisition report. July 4.

Sue Harding & Trevor Long (2001), MBA Management Models. Gower Publishing Ltd.

Walker, J. W. & Karl, F.P. (2000), “Why Do Mergers Go Right? in Human Resource Planning Vol.23, No.2.

Wall, Shannon R. & Wall, Stephen J. (2000), The Morning After: Making Corporate Mergers Work after the Deal is sealed. Cambridge, MA: Perseus Publishing.

 

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