Upjohn, Swedish Firm to Merge in $13-Billion Deal

In a deal that would create the world’s ninth-largest drug company, U.S. pharmaceutical giant Upjohn Co. and Sweden’s Pharmacia AB said Sunday that they will merge in an exchange of stock valued at $13 billion.

The planned merger, which would result in a company with $7 billion in annual revenue, is the latest in a series of consolidations sweeping the industry as concern about high health-care costs forces drug companies to seek economies of scale.

Upjohn, based in Kalamazoo, Mich., is the world’s 19th-largest drug company. It makes such familiar products as Kaopectate stomach medicine, the baldness drug Rogaine and the sleeping aid Halcion, as well as other health care, veterinary and chemical products.

Stockholm-based Pharmacia, the world’s 18th-largest pharmaceutical company, makes products for growth-hormone deficiency, eye surgery, cancer treatment, nutrition, allergy diagnostics and smoking cessation.

The merger, if approved by shareholders, will create a new company called Pharmacia & Upjohn Inc., based in London.

The merger promises to help the beleaguered U.S. firm develop products to replace its aging drug line while affording its Swedish partner access to U.S. markets, analysts said.

“It gives [Upjohn] some breathing room, which they didn’t have before,” said Ken Abramowitz, a health care industry analyst with Sanford C. Bernstein & Co. in New York. “The opportunity for some cost-cutting creates some earnings, which allows the company to accelerate its research spending . . . to try to develop enough new products to take over when the cost-cutting stops.”

The merger is expected to result in annual savings of about $500 million. Among other things, the companies would eliminate about 4,000 jobs, leaving the new firm’s combined work force at about 34,500.

Upjohn has come under criticism in recent years for lagging in product development, with a resultant slump in U.S. sales. Some new drugs, including a proposed anti-impotence drug called Caverject, are still years away from final development.

The new company would have annual research and development spending of more than $1 billion, the companies said.

“This is a merger that truly constitutes far more than the sum of the parts,” Upjohn Chairman John L. Zabriske said in a statement. Added Zabriske, who would be the new company’s president and chief executive: “Pharmacia & Upjohn will have extensive financial and operating resources, market scope and earnings potential.”

Jan Ekberg, president and chief executive of Pharmacia, would be the new firm’s chairman. “For both Pharmacia and Upjohn, this merger is a bold strategic move to build a highly competitive company as the worldwide pharmaceutical industry continues to consolidate,” he said in a statement.

Company officials expect that by 1998, Pharmacia & Upjohn would launch several new products, including Latanoprost for glaucoma treatment, Freedox for internal bleeding, Tolterodine for urinary incontinence, Rescriptor for AIDS and Cabergoline for Parkinson’s disease.

“Pharmacia gets a stronger U.S. base,” Abramowitz said. “They also get some protection to their earnings, due to the cost-cutting, and it also allows them to integrate the research efforts of the two companies.”

The merger is only the latest in a series of industry marriages. Earlier this year, Glaxo took over rival Wellcome in a $14.2-billion deal. Last week, the French-American venture Rhone-Poulenc Rorer made a hostile $2.61-billion bid for Great Britain’s Fisons.

Under merger terms, Pharmacia shareholders will be offered one share of the new company’s common stock for each Class A or Class B share. Each share of Upjohn will bring 1.45 shares of Pharmacia & Upjohn common stock. The new firm’s 504 million shares will be split evenly between Pharmacia and Upjohn owners.

The merger is scheduled to be completed in late November.

Merger rumors surfaced Friday, taking the price of Upjohn stock up $3.375 a share, or 9%, to $39.625 on the New York Stock Exchange.

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Drug Companies Consolidate

Listed are recent major mergers and acquisitions.

* Glaxo and Wellcome, $14.2 billion, 1995

* Pharmacia AB and Upjohn & Co. (proposed), $13 billion

* American Home and American Cyanamid Co., $9.7 billion, 1994

* Hoechst AG and Marion Merrell Dow, $7.1 billion, 1995

* Merck & Co. and Medco Containment Services Inc., $6.6 billion, 1993

* Roche Holdings and Syntex Corp., $5.3 billion, 1994

* Eli Lilly and PCS Health Systems, $4 billion, 1994

Source: Bloomberg Business News