Mergers and Acquisitions

1. Examine the circumstances that resulted in the merger or acquisition for the selected company. Speculate on two reasons why the resulting decision to merge or to acquire/be acquired was made.

The basic principles of the development of large companies in the 1980s included economy, flexibility, maneuverability, and compactness, which in the late 1990s were replaced by the orientation to the expansion and growth. The merger of two American pharmaceutical companies, namely Gilead Sciences Inc. and Pharmasset Inc., presented broad opportunities for the new company to find additional sources for the expansion of its activities.

The merger of the American company Gilead Sciences Inc. and Pharmasset Inc. became the largest merger in 2012. It was initiat by the American company Gilead Sciences Inc., which acquired Pharmasset Inc. for the record cost as for a biotechnological company – $11.2 billion. The aspiration of the company to have one of the most perspective medicines – sofosbuvir, developed by the specialists of Pharmasset Inc. was among the primary reasons of the merger.

 

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The merger of Gilead Sciences Inc. and Pharmasset Inc. was characterized by the impact of four dynamic forces.

• There are really four dynamics causing this trend toward merge. First, the available market for third-party management is shrinking because more owners are buying properties and self-managing them. The second dynamic that favors merge is the reduction of risk. The third dynamic is the increased need for cost efficiencies to remain profitable in a climate of flat growth in fees and rising property-staff increases (Combs, 1996).

During the merge of Gilead Sciences Inc. and Pharmasset Inc., the merged company acquired a full right for property. The owner changed, and the property was restructured. The purpose of this merger was the capture of a corporate control and achievement of a competitive advantage in the market. The motives of the merger include a tendency to growth, synergetic effect, diversification, the financial underestimation of the absorbed company in the market, personal motives of managers, improvement of management quality, the motive of monopoly and the motive of demonstration of optimistic performance in a short-term period.

2. Access the significant positive (negative) effects of the merger or acquisition. Provide at least 2 examples of those effects now that the merger or acquisition has been completed.

Speaking about the positive effects of the acquisition of Pharmasset by Gilead Sciences Inc., it opened many opportunities for the latter to change the treatment approach to the HCV-positive patients as it started to develop special regimens for treatment of the disease. This merger increased the efficiency of the new company; however, it also worsened the results of the current production activity and strengthened the burden of bureaucracy. It is very difficult to estimate the changes caused by the merger in advance. The positive effects of the merge include the synergetic effect and the motive of monopoly. The sunk costs as well as the underrun of the development of the merged company from the competitors are among the negative outcomes of the merger (Gilead, 2011).

3. Examine the organizational structure that has resulted from the merger or acquisition. Analyze the major differences between the resulting company and the original 2 organizations.

Before merging, Gilead Sciences Inc. had the hierarchical organizational culture based on the HR regulated activity. The company has formal rules and a strictly regulated policy. It was successful due to the low expenses and innovative medical preparations. Pharmasset Inc. had the autocratic organizational culture. It used to apply the system of innovations in its activity. The essence of the company’s organizational structure was based on the experiments and innovations as well as the development of new products. The company’s HR management considered personal initiatives and a personal choice of employees. The organizational structure of the new merged company became decentralized or divisional. Its operations include such types of activity as innovation division, production management, distributor division, etc.

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The key factors, critical in the new company’s culture to ensure it attains the first-year strategic goals, are:

• Making the new company more rational and manageable. It means to take the necessary measures for the authorities to choose the best suitable leadership style;

• Making the merged company a monopolist in the sphere of its activity. The merger should capture the market of the pharmaceutical services in its sphere;

• Making the merged company effective and successful in a long term perspective. The new company should be self-supporting and profitable. (Evans, 2007).

4. Determine whether or not the human resources management practices of the company were modified to reflect the outcome of the merger or acquisition. If no changes were necessary, speculate on the reasons why they were not. Provide a rationale for your response.

After the merger of Gilead Sciences Inc. and Pharmasset Inc., the top management of the new company paid much attention to the possible negative consequences of sharply increasing instability of personnel structure. It also ignored the questions of compatibility of business cultures, which could lead to the mass losses of a qualified personnel. The importance and amount of work on HR adaptation in the new company significantly grew, the volume of communication streams and costs of the personnel increased as well as uncertainty and risks during personnel decision-making. In order to retain the key personnel, the board of directors of the new company developed and implemented the program of personnel resources stabilization including the prime solution to the questions of remuneration and financial stimulation for key heads.

The consequences of both progress and integration failures can be considerable and long-term for the participating companies. On the one hand, the merging companies can achieve an enormous synergetic effect and essential decrease of expenses as well as provide a strong base for the accelerated growth. On the other hand, after the failure of integration efforts, these companies could fail to recover quickly: they are compelled to struggle with additional expenses, inconsistent strategy, clashing processes, control systems, and different business cultures. It is a good reason for the preliminary planning and gradual implementation of the integration actions.