Acquisition & Mergers

Summary

Fred Hassan talks to MeetTheBoss about risk management strategies and mergers and acquisitions.

"This company was looking at a big cash burn, and something had to be done about it very quickly."  Fred Hassan, the Final CEO of Schering-Plough talks about the logistics of going through mergers and acquisitions.

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Fred Hassan

Fred Hassan is the former chairman and chief executive officer of Schering-Plough Corporation. Prior to his arrival at Schering-Plough in April 2003, Hassan was chairman and chief executive officer of Pharmacia Corporation. He received a bachelor's degree in chemical engineering from the Imperial College of Science and Technology at the University of London and an M.B.A. from Harvard Business School.Fred Hassan's Wikipedia entry.

Fred Hassan

Be very careful about a transaction because when one does a transaction, one changes the system, and one can have unforeseen consequences.  So look at the fit.  Make sure that the fit with the other company is good.  When I look at a situation in my industry, I look at the strategic fit first.  Does it fit with the strategy that my company is trying to pursue in the next phase of its development? 

In other words, don’t get enamored by the attraction of the object of the target company, but does it fit the next stage of strengths, weaknesses, opportunities and threats that my company has at present?  Does it fit the strategy?  And of course, part of the strategy fit is the culture fit and how one is gonna deal with that culture fit.  The second is the size fit.  In a size-driven business like pharmaceuticals, you want to make sure that the size engine will be stronger as a result of this combination so that the combined sales that would be generated would be properly supported by the size engine. 

In too many cases in pharmaceuticals, the merger occurs, the financial community applauds, there are two or three good years of earnings increases at costs are reduced, and then the stock price starts to go down again because the R&D pipeline is not supporting the larger sales base that’s been created.  And that’s just short-term thinking, and it doesn’t lead to shareholder value increase in the long term.  So I work very hard at the size fit.  Strategy fit, size fit, and the third is the financial fit. 

If you go in at a price that is not the right price, and you overpay, then no matter how good a job you’ve done on the operational side after the merger, it takes a very long time for the shareholders to get their money out of the transaction.  So it’s very important that the financial numbers also be right.  These are the three hurdles that I always look at, and if a target matches those three, then I move.  And it’s true that in my industry among all the CEOs I’ve probably seen more transactions than the other big pharma CEOs.