Examination of witnesses (Questions 120
- 131)
WEDNESDAY 22 APRIL 1998
MR JAN
LESCHLY AND
DR GEORGE
POSTE
Dr Gibson
120. Yes, we are.
(Mr Leschly) 70 to 80 per cent do not generate value
and here we are saying we have had this wonderful increase in
market values, an enormous increase, short-term based on speculation.
Who is responsible for generating the value? That is the management
of the two companies. That is not something that is going to happen
overnight. That is a long-term process. I am sitting back and
taking all the blame, you must admit, for why we do not do this
merger. I am saying I am the one, together with my management
team, together with Glaxo management combined, who should now
generate all this value. I feel and our Board feels that risk
is too big compared to being a strong company who, as you must
admit, has done very well and has no reason to believe it will
not do well in the future. You have to compare these two. If you
look at the value generation we will do as an independent company
and Glaxo as an independent company, the success we will have,
the support we will give to the science base in the UK will not
be diminished through that I believe. If you look at those two
compared with a merger that fails, we are much better off as two
independent strong companies.
121. Do the scientists move between the two
companies? Would you hire someone from Glaxo?
(Mr Leschly) If they are good, yes. Absolutely. We
always do that. We move around and there is nothing new in that.
(Dr Poste) The world is bigger than events at the
moment. We have obviously strong professional and collegial ties
to our colleagues from Glaxo Wellcome and we will continue to
have. We are both engaged in one of the most dramatically complex
endeavours in research. There is enormous respect for our colleagues
who do that in any company. There is a constant dialogue and exchange.
People move between companies and will continue to move between
companies. Even post-merger Jim Niedel and I have been discussing
a collaborative research project. I think this is an issue at
the macro level between the two companies at the level of research
and development and if a sensible opportunity arises and it is
good science we will certainly look at it and always look at good
people.
Dr Jones
122. Sir Richard himself said at our last hearing
that you were still collaborating on various projects and he mentioned
research fellowships for bio-informatics. Can we see perhaps the
companies putting this behind them and continuing to collaborate
in ways which are beneficial to a science base?
(Mr Leschly) Chairman, I can tell you, you will be
surprised to hear I had dinner with Sir Richard the other night.
Dr Gibson
123. Who paid?
(Mr Leschly) No rumours now.
124. Fifty/fifty?
(Mr Leschly) Sir Richard is Chairman of the British
Pharma Group and I am a member of the Board. We met with the DTI.
We had a great dinner. I can assure you there is no reason why
we should not have a good relationship with Glaxo in the future.
This is behind us. We are in business, we have to do what is right.
I do not think this is a personal issue whatsoever.
Mr Jones
125. Sir Richard told us that further consolidation
within the global pharmaceutical industry was inevitable. Do you
agree with that? To what extent has the increase in the number
of mergers and acquisitions over the last five years reduced fragmentation
in the UK?
(Mr Leschly) I think I fully support what Sir Richard
said, that there will be a consolidation over time. I already
mentioned that when I talked about the minimum level of resources
available to survive in this complex industry. It is also interesting
for the British pharmaceutical industry that six years ago there
were six companies in the UK. There was Glaxo, there was Wellcome,
there was SmithKline Beecham, there was Zeneca, a spin-off from
ICI, there was Fison's and there was Boots. Boots has been absorbed.
Fison's has been absorbed. Wellcome has been absorbed. We have
three left. The good news is that together we have approximately
ten per cent of the world market. I think Zeneca, Glaxo Wellcome
and ourselves are very powerful companies, we work very well together
in the industry and we have, I believe, a very major influence
in what is happening in the industry which is very important.
I do not see any threat to those three companies, they are very
powerful, all three companies, so there is no weakness left.
126. Do you think that the same factors that
made you consider the merger are likely to spur other pharmaceutical
companies to consider a merger in the future?
(Mr Leschly) Our company merging in the future?
127. Yes, your's and any of the others?
(Mr Leschly) I cannot speak on behalf of them. We
have a very clear strategy and we have always said, and will continue
to say, we have no need to do a merger. On the other hand, I certainly
believe we will constantly look for opportunities for how we can
enhance our overall value and increase our competitiveness. Would
that lead to a merger? I can say we have no thoughts about that
today. On the other hand, I cannot guarantee in the future but
it is probably unlikely.
Dr Turner
128. You would not rule it out?
(Mr Leschly) There are very limited opportunities
to do a merger of the nature that we were talking about with Glaxo
and SmithKline Beecham. These were two strong British companies.
We certainly have a commitment to Britain in that sense, we are
very committed to the research base here and therefore our options
are not that big.
129. What would happen if a major offshore player
were to enter the British stage and tried either to offer a merger
or a takeover with either of the three remaining British players?
Would that change the game altogether do you think?
(Mr Leschly) I have to say concerning Glaxo and SmithKline
Beecham, and I believe to a certain degree Zeneca, I do not think
there is any threat of that, I really do not think so.
Mr Jones
130. You are obviously very, very experienced
in mergers. Can you tell us what the criteria are for getting
the best out of mergers between companies which have significant
R&D activity and where a substantial amount of the value of
the companies is held as intellectual capital?
(Mr Leschly) I have experience in mergers and I have
experience in acquisitions and I can see the difference. The most
important thing is to motivate people to make sure that people
get enthusiastic about working for the company and that applies
to R&D and any other part of our company. Explaining the mission
for what we are trying to do is absolutely essential. Then, I
have to admit, it is very important, certainly in the SB culture,
that we incentivise the organisation, that we pay for performance
and make sure that when performance is achieved our employees,
not only the shareholders but the employees, also get a part of
the success. To me that is the essence of a merger. That can only
happen in a merger of equals. In a hostile takeover you can imagine
there are A players and B players and it is the A players who
take over. They may be happy. I was a B player when we were acquired
by Bristol Myers when I was President for Squibb, and there are
not that many executives left from Squibb in the new Bristol Myers
Squibb.
Dr Jones
131. But you made it yourself?
(Mr Leschly) I was the one who left.
Dr Jones: Mr Leschly and Dr Poste, thank you
very much; you have been very patient with us. We have kept you
far beyond the time that we initially indicated we would. It has
been a fascinating afternoon. I am sure that our Chairman, Dr
Clark, is very sad to have missed being here with us. I pass on
his apologies. Thank you very much.
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