Case Study

The new Merck: Beating the odds (B)

12 pages
October 2009
Reference: IMD-3-2137

DARMSTADT, SEPTEMBER 2009. Jon Baumhauer, Chairman of the Merck Family Council and an influential member of the E. Merck KG Executive Board, could not hide a smile as he recollected the confidential first meeting together with members of the Merck KGaA Executive Board with Ernesto Bertarelli and his Serono advisor on 19 September 2006: “When Serono got back to us after months of trying to sell itself to every big pharma in the world, they were of course anxious to get a deal done quickly. But not that quickly… When they asked how long it would take Merck to get back to them, I told them, ‘Negotiations can start immediately.’ That took the air right out of them. They clearly underestimated the family cohesion and their ability to rally behind the deal. We had discussed this internally for months, and the family was 100% involved. I did not need to go back to them: They had given their formal approval. That very much sealed the deal. This is what family can do in business…”. The Serono acquisition proved a defining moment for both the family and the company, a truly transformational merger. Merck became one of the world’s leading biotech companies and the seventh largest pharmaceutical company in Europe. It gave the combined group the R&D firepower and critical mass to play in the same league as the “big pharma” players, Amgen and Roche. It was: “…not a scale or size merger, but a knowledge and capability merger. Our two companies are complementary and together create one that, in the mid-size arena, has world-class knowledge in biotech and small molecules.” But challenges remained. Had the firm finally reached an efficient scale? Would impending profound changes to health policies wreak havoc with current profit drivers? Would it be possible to maintain the coherence and integrity of the family with the company’s exploding size? Would family ownership continue to decline? Learning objectivese: Managing a family business for sustainability; sophisticated family and business governance structures; managing growth; technology innovation; maintaining the entrepreneurial spirit; multi-generation family business; critical size and growth issues in the pharma business; managing incentive systems for executives; managing a transformational merger.

Keywords
Succession, Pharmaceuticals, Transformational Merger, Meritocracy, Family, Due Process, Acquisition, Going Public, Growth Strategy, Critical Mass
Settings
Serono
2006-2009
Type
Field Research
Copyright
© 2009
Available Languages
English
Related material
Teaching note, Video
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