Drug Firm Merger Threat To Jobs Merger Of Swiss Companies Puts Pressure On American Competitors
The latest corporate mega-merger is half a world away but it will rock the fortunes of U.S. companies, endangering thousands of jobs and brutally demonstrating that global forces shape business decisions.
The marriage of Swiss drug and chemical companies Ciba-Geigy Ltd. and Sandoz Ltd., announced Thursday, will create the world’s No. 2 drug maker with a broad array of products from Ex-Lax and Maalox to Ritalin for hyperactive children.
The merger extends a 3-year boom in health care deal making, as companies struggle to shrink costs and focus on high-profit products, pressured from governments and insurers to control prices of drugs.
Ciba and Sandoz said they will eliminate 10,000 of their 134,000 jobs. Managers, salespeople and researchers will be just as vulnerable as factory workers and the United States is expected to be a major target.
But the larger impact will come as other companies examine the threat posed by this new industry behemoth, to be called Novartis.
Sam Isaly, an industry analyst in New York, said the deal could prompt a spiral of ever-bigger mergers as competitors leapfrog each other in size and cut duplicate workers in an attempt to stay profitable.
“Anybody below the top five in the industry has a very uncertain future and even the top five can’t be sure,” he said.
The deal also illustrates that cost-slashing and job-cutting isn’t just an American phenomenon. Most of the layoff news lately has focused on U.S. pillars like AT&T and Scott Paper. But some of the biggest drug companies doing business in America are based abroad.
No cash will exchange hands in the Ciba-Sandoz merger. Stockholders will simply swap their shares for a stake in the new company.
Nonetheless, the deal is by far the biggest ever in the drug industry and one of the biggest corporate transactions in history. By one measure, its value is $29.6 billion, second only to the $33.8 billion takeover of Bank of Tokyo by Mitsubishi Bank Ltd. announced in March 1995.
Novartis annual sales will total 26 billion Swiss francs, or about $22 billion, excluding certain chemical and dye operations the companies intend to sell. Health care products would represent 59 percent of sales, agricultural chemicals and products 27 percent and nutrition products 14 percent.
Both Ciba and Sandoz have something of a checkered history. Both founded as dye companies, they combined after World War I in a drug and chemical cartel that lasted until the 1950s.
Experimenting with psychotropic drugs during that decade, Sandoz scientists created LSD, which remained legal until government authorities got wise to its bizarre hallucinogenic effects.
In 1976 Ciba admitted it tested an insecticide by paying six Egyptian boys to stand in a field while they were sprayed. Two years later, 1,000 deaths in Japan were blamed on a Ciba diarrhea drug.
Today Sandoz is best known for drugs that suppress the immune system to ease kidney and other organ transplants, including its top seller, Sandimmune. In 1994 it bought the Gerber line of baby foods.
Ciba’s best-selling products include Ritalin, the drug praised by many parents for calming their hyperactive children, but reviled by others for its side effects. Its non-prescription medicines include Allerest allergy medicine, Acutrim diet pills, Maalox antacid and Doan’s pills for back pain.