Gsk: Case Study

On January 17 2000, the Boards of Glaxo Wellcome (Glaxo) and SmithKlineBeecham (SmithKline), two of Europe’s leading pharmaceutical companies announced proposed terms of a merger; a deal that would create the second largest research-based pharmaceutical and healthcare company in the world, with a global workforce in excess of 100,000 and a combined market capitalisation of £114 billion. Only US-based pharmaceutical giant Pfizer would be in a position to rival GlaxoSmithKline’s (GSK) £18.1 billion ($27.5 billion) in global sales, R&D capabilities, extensive development pipeline, and product range (see Exhibit 1 for GSK overview).

The strategic logic behind the merger appeared clear. Both companies had a number of country-level operations, offering a merged GSK significant scope to reduce costs and to benefit from potential synergies in areas such as marketing, administration, and R&D. The proposed cost savings from the merger, combined with savings from manufacturing restructuring efforts that were already underway within the two companies, were estimated to reach around £1.6 billion ($2.28 billion) by 2003. The aim was to reinvest those savings in the critical area of R&D, which would in turn enhance the merged company’s product pipeline.

On December 27 2000, Glaxo and SmithKline officially became one company, with Glaxo and SmithKline shareholders holding approximately 58.75% and 41.25% of the share capital of GSK respectively. Dealings in GSK shares commenced on the London Stock Exchange on the same day. On January 11 2001, the new CEO, Jean-Pierre Garnier, made his first in-house speech broadcast by satellite to employees around the world. Describing his aspirations for the company, Garnier said: “The pharmaceutical industry today sells 80% of its products to 20% of the world's population. I don't want to be the CEO of a company that only caters to the rich… I want those medicines in the hands of many more people who need them.”

Garnier’s statement struck a...