Investors and analysts were delighted. For example, Jo Walton of Lehman Brothers told Finanz und Wirtschaft that “the merger of the two healthcare divisions would allow for greater concentration … and the breakup of the industrial divisions would result in an increase in value.” Arvind Desai of the New York investment firm Mehta and Islay could barely contain his enthusiasm: “Novartis is a new and rising star with a shining future. The merger of the two companies creates a credible and new concept that other companies will emulate.” He would prove to be right.
British newspaper The Guardian wrote about other new deals and expected new pharmaceutical giants to materialize following the wave of mergers at the time – Glaxo took over Wellcome and Rhône-Poulenc acquired Fisons. Even Chairman Alex Krauer fanned hopes when, with a view to further acquisitions, he told Reuters: “We have to keep our eyes open and be ready if new opportunities present themselves.”
Breaking a taboo
It was clear to Marc Moret, who passed away in 2006 and who planned the merger with the Honorary Chairman of Ciba, Louis von Planta, that this “second Basel marriage” would create a huge stir: “Such a collaboration would have been politically unthinkable and culturally unacceptable five years ago,” he told Finanz und Wirtschaft. “But today, at a time when people see that even Switzerland has some problems, it is easier to talk about things that were previously taboo,” he said, adding that “the merger has not only economic consequences, but also political ramifications.”
Politically correct and unvarnished
Unlike in the financial world, politicians had an ambivalent attitude toward the jumbo merger, as the Handelszeitung described the deal, because it would result in the loss of some 10 000 jobs worldwide, including 3000 in Switzerland.
For example, the Federal Council announced that it expected those in charge of the merger “not to place social considerations below pure profit motivations. People have to take priority, even in business matters.”
The governing council of Canton Basel-Stadt was also concerned about the loss of jobs. But Executive Council member Joerg Schild also saw the merger as a milestone. “The decision to merge is evidence of entrepreneurial spirit and consistent entrepreneurial behavior, which deserve respect and recognition,” he was quoted in the Tages-Anzeiger.
However, the Tages-Anzeiger also asked what people in the streets of Basel thought. At the Roessli restaurant on Brombacherstrasse they were especially fearful of job cuts and the Roessli guests did not mince their words as they vented their frustration. “It’s downright sickening,” the Tages-Anzeiger quoted one employee. “A few millionaires earn a few million francs overnight with their shares without doing a thing. And the workers lose their jobs.”
Krauer promised that the job cuts would be carried out in a socially responsible manner, a promise that was kept. Ultimately, Novartis did so well in the following years that the company steadily increased its headcount, and by 2000 it employed more people than it had at the time of the merger.
Basel as pharmaceutical hub
For Hans-Peter Platz, editor-in-chief of the Basler Zeitung at the time, the merger was also the beginning of a new era and the final farewell to Basel as a center of chemistry. While Platz did not downplay the fear of job losses, he came to the following conclusion: “The need that multinational companies feel to achieve scale, the case for which can apparently be argued easily and cogently, has to be used here as a commitment to diversification.” This, said Platz, could also attract new innovative companies if Basel, as a nascent pharmaceutical hub, created the corresponding framework conditions.
Finanz und Wirtschaft saw major opportunities as well. “The mega deal which has earned Switzerland so much respect, especially in the US, will increase the self-confidence of our economy – just in time to counteract the mood taking hold here that the country has no future,” said the editor-in-chief at the time, Peter Bohnenblust, who anticipated that the Novartis deal would “unleash new energy.”
The assessments by Bohnenblust and Platz would later prove to be correct. The Swiss corporate landscape subsequently changed significantly and Basel became a widely recognized center of innovation and research.
Innovation
While Moret and Krauer explained the background of the merger to the media, CEO Daniel Vasella emphasized the importance of innovation from the start.
In an interview with the Tages-Anzeiger, he said that the merger was not a defensive move and was mainly intended to strengthen innovation: “Innovation is the most important element for us … Size is especially important for research and development, which is becoming more and more expensive.” Of one thing he was convinced: “Novartis will be in the top ranks of innovation.”
Only a few months later, Novartis launched its antihypertensive medication Diovan®, which became one of the company’s best-selling medicines. A few years later, a medical breakthrough in cancer treatment was achieved with Glivec®.
Daniel Vasella told Reuters that the company would continue to invest in expanding its pipeline, which is exactly what it did in the following years. Not only did it expand its development of pharmaceuticals, but Novartis also diversified into new areas, such as the generics business, and increased its activities in the area of over-the-counter medications and vaccines.