The Case of Wellcome Israel Pharmaceuticals

Case and Firm Background

            The year was 1995; Wellcome Israel was on the verge of the acquisition deal to be done by another pharmaceutical industry giant, Glaxo. While there has been done deal talks in the top management ranks, the local production unit in Israel remains to be unaware of the upcoming take-over which is seen as a betrayal of sorts of loyalty given by its employees.

            Wellcome Israel has been around in the local industry for 40 years now and has continually produced top of the line pharmaceutical supplies and equipment which is widely used by the medical and health care industries. The local unit usually handles the distribution of supplies and the local medical registration of its medical supplies. Promedico, the local partner which also doubles as the primary buyer of what Wellcome Israel produces and has theoretically taken over the management of the local unit in the country.

            Wellcome industries do not really have a local license in the country. The name Wellcome Israel is primarily for the establishment of the brand name and associates it with its more popular mother company. This particular marketing strategy saves the parent company the time and cost of establishing another organizational system that is adept with the local market procedures of Israel.

            In this particular set up, Wellcome Israel remains to be a subordinate in terms of management of yet another Wellcome company unit, this time in Greece: Wellcome Hellas. However, the control on the payroll of employees is provided for by Promedico and the offices of the local Wellcome unit is also at the Promedico offices. According to both of the organizational structures of the two companies, Wellcome Israel is part of a top management line of Wellcome Hellas while Promedico considers it to be under its own Pharmaceuticals and Diagnostics Division. Practically, the name Wellcome Israel does not entirely exist and Promedico is the start up mechanism that the mother company employed in order to give salaries to its employees. In the advent of the Glaxo take over of the local unit here, Wellcome Israel will then merge with the team from Glaxo to form a new organizational structure for the merged units.

            This particular unit is being managed by Ofra Sherman, the manager of Wellcome Israel who has been with the company for five years now. Being one of the youngest managing directors of the company, Ofra has driven her team on to be one of the leading profit makers of the company amounting to about $ 7 million or even a large fraction of what Wellcome Hellas do in 1993 with only produced about $10 million. What is even more amazing is the fact that the Sherman team is only composed is 16 employees including her compared to Wellcome Hellas’ 60.

            The primary secret to the success of this management scheme of Ofra Sherman is the fact that she maintains a close tie and hands on approach with her employees. Through the years of working with them, she was able to build that sense of camaraderie among her employees. She also goes to lunch with them and just listen to them talk with what they want and what they feel with each other, a way of catching up to her subordinates. She even shares her own thoughts to some of the people with whom she feels has the right sense of maturity and understanding.

“I have no boss. I’m in the middle of nowhere”

Sherman is also a cheerleader and a prime motivator with her co-workers. Relating to them the achievements that they have and success how small they may be and motivates them if ever there are problems that are related to work that they should deal with.

This particular management skill that the managing director manifests resulted to a relaxed working atmosphere within the office and has reduced the pressures that the work may bring about. It even managed to break the divide between Ofra and her employees. This also has been object of jealousy in the part of the other managing directors in Promedico and Wellcome Hellas both of which detaches herself to and work with the unit in an autonomous fashion.

This jealousy even escalated to the tension that arose between Promedico and Sherman wherein the former’s Pharmaceutical and Diagnostics Division head is envious of the abilities of Sherman’s workforce considering that of its smallness in number and also of the fact that the Wellcome Israel team amounted for nearly half of the total sales revenue that was made by the entire division.

While this tension is going on, Promedico has experienced a decline in their sales due to the loss of its primary clients in the local business arena. For instance, Promedico has lost the representation of Nestlé products in Israel which further affected its stand in the market. This was also a factor that persuaded the Wellcome Group in merging with Glaxo, who also has a local unit in Israel, so as to transfer the Wellcome Israel unit into Glaxo once the merger is done (“REGULATION (EEC) No 4064/89 MERGER PROCEDURE”, 1995).

Noting on the bright side of the merger, Wellcome Israel, if now be merged with Glaxo Israel will have a now real identity which could give assurance and boost their company pride and self-morale. This would also free themselves from the Promedico group and Wellcome Hellas unit which was proven to be more of a burden for them.

On the other hand, as though betrayed, the employees of the Wellcome Israel unit would have no choice but to accept the offer. It is therefore, Ofra Sherman’s burden in raising her unit’s morale (Gold, 2005).

Analysis and Critique of the Case

            One of the primary critiques for this case is the confusion that arises as to whom the employees of the Wellcome Israel unit should really work for. The situation wherein Wellcome Israel’s identity as an autonomous unit is sacrificed just to avoid the costs of creating a new and customized organizational structure that is unique for the Israeli market. This incidence has led to the decline in morale of the employees in Wellcome Israel though remedied by the effective managerial skills of its managing director, Ofra Sherman.

            Related to this, the discrepancy as to whom should really provide the salaries of these employees is also a problem considering that there is already a confusion as to whom the employees really work for in the first place. Both of these scenarios remain a problem which could be solved by the merger between Wellcome and Glaxo (“Glaxo Wellcome Profile”, 2000).

            The strange and weird organizational set-up of Wellcome Israel is something that is peculiar in the sense that a company would wonder as to how this situation came to be and why exactly did the firm agreed to undergo such a situation. This set-up will insinuate further conflict in terms of profit allocation even though there is a contract. Glaxo in this case would act as a neutralizer of sorts in saving Wellcome Israel from this lack of company identity in the region.

            Also, another emerging problem in the advent of the acquisition of the Glaxo group of Wellcome including the Israel unit is the adjustment that the employees would then undergo in its aftermath (Tylaer, 1998). These employees already have low morale brought about by their previous set up with Promedico and yet go through another one. Also, the fact that Wellcome Israel is not a duly recognized unit of the Wellcome group somehow affected the company pride of these employees since they would be yet under another management scheme. 

Examples from Other Cases

Mergers and acquisitions in the pharmaceutical industry is not a new and absurd idea nowadays especially in the advent of stiff competition ion the market for certain regions. For instance, mergers of companies such as Astra and Zeneca in the late 90’s are also proven to have solved certain problems of Astra in its operations in America and Asia.

In this particular merger acquisition, the separate boards of Astra and Zeneca were able to reach a contract in December of 1998 on the equality in its possible merger at that time. The entire aspects of the proposed merger then were afterwards discussed in separate.

The effects of this acquisition have been proven to be positive. Astra’s sales during the fourth quarter of 1998 amounted to SEK 18,115 as compared to the previous year’s 12,447 which posted an increase of 46 percent compared with the corresponding period a year ago. For comparable units the sales increase was 17 percent, or 12 percent when calculated at constant exchange rates of the time (“Astra Year-End Report”, 1998).

For some similar components, Zeneca’s sales increased by 15 percent, or 13 percent when done on exchange rates. Changes in price already had an optimistic impact on the growth of company sales in the phase of just about a percentage point with the North American market as its main consumer (“ASTRAZENECA MERGER – CLOSING TIMETABLE AND REVISED DIVIDEND PAYMENT DATES “, 1999).

Truly defined, the existence of mergers and acquisitions can be proven to be beneficial in alleviating the current industry status of a firm while cashing in on its goal of high profitability.

References:

Astra Year-End Report. (1998).   Retrieved December 12, 2006, from http://www.astrazeneca.com/sites/7/archive/Investors/Financial%20Reports/1995-1998/astra-1998-end-of-year-report.pdf

ASTRAZENECA MERGER – CLOSING TIMETABLE AND REVISED DIVIDEND PAYMENT DATES (1999).   Retrieved December 12, 2006, from http://www.astrazeneca.com/pressrelease/259.aspx

Glaxo Wellcome Profile. (2000).   Retrieved December 12, 2006, from http://news.bbc.co.uk/1/low/business/606752.stm

Gold, F. a. (2005). International Organizational Behavior,2nd edition: Pearson/Prentice Hall.

REGULATION (EEC) No 4064/89 MERGER PROCEDURE. (1995).   Retrieved December 12, 2006, from http://ec.europa.eu/comm/competition/mergers/cases/decisions/m555_en.pdf

Tylaer, A. J. (1998). Glaxo Wellcome Under the Microscope.   Retrieved December 12, 2008, from http://www.bcctc.ca/conn19-1/glaxo.html