Wednesday, December 9, 1998 Published at 14:58 GMT
Business: The Company File
Zeneca and Astra merge to form drug giant
The cost of developing new drugs is rising
UK-based Zeneca and Astra from Sweden will form the fourth largest drug company in the world, with $14bn in sales. The new company will be called AstraZeneca.
Zeneca chief executive Tom McKillop will become chief executive of the new group, with Percy Barnevik, the chairman of Swedish-Swiss engineering firm ABB, taking the chairman's job. The company will have its headquarters in London, while Research and Development will be based in Sweden.
Shares in Zeneca have risen strongly on the London Stock Exchange. By 1015GMT they were up £1.20 to £26.40, while shares in Astra rose even more - by 22% - in Stockholm. Dealers said there were rumours that another company might still bid for Zeneca, which could lead to a bidding war.
"This is a winning combination. Both are strong in limited areas," commented Sergio Traversa of Mehta Partners, a drug industry investment firm.
'Merger of equals'
Although Zeneca makes the leading hypertension drug Zestril and Astra the ulcer drug Prilosec, the world's best selling prescription drug, it was widely assumed in financial circles that both would have to find partners to compete with giants like Glaxo Wellcome and Merck. The patents on their main drugs expire soon, and they need to combine their research and development on new products. The two companies are market leaders in anti-cancer drugs and anesthetics, with Astra's Xylocaine.
The final impetus for the talks was probably the merging of the pharmaceutical divisions of Hoescht of Germany and France's Rhone-Poulenc, announced last week.
The deal makes AstraZeneca second in Europe, ahead of the two biggest UK pharmaceutical companies, Glaxo and SmithKline Beecham.
Tom McKillop, the new chief executive, said:
Earlier in the year Astra bought its way out of a US marketing deal with rival Merck to pave the way for a merger.
The new company will now have to pay Merck $740m as part of that settlement.
Zeneca, which was demerged from ICI in 1993, has been the subject of bid speculation for some time.
Astra had to overcome resistance from its biggest shareholder, the Wallenberg family who own 12% of the company. The appointment of Mr Barnevik, who heads Mr Wallenberg's investment company, has eased those concerns.
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