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Assess the likely impact on a business such as Pfizer, of a global merger with a business such as Allergan. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Question 2
Assess the likely impact on a business such as Pfizer, of a global merger with a business such as Allergan.
Worked Solution & Example Answer:Assess the likely impact on a business such as Pfizer, of a global merger with a business such as Allergan. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Step 1
Global merger impact on Pfizer
Answer
A global merger such as the one between Pfizer and Allergan can have significant implications for Pfizer's operations.
Firstly, the merger allows Pfizer to consolidate assets and operations across different countries, which can lead to efficiencies and cost savings. One notable benefit is the opportunity to reduce the overall corporation tax bill, as Ireland's tax rates are generally lower compared to the United States. This can enhance the company's profitability and available capital for further investment.
Additionally, being located in the European Union expands Pfizer's market access. Pfizer can introduce its products to new markets within EU member states without facing trade restrictions, thereby increasing potential sales significantly.
Moreover, the merger provides Pfizer with additional resources and capabilities from Allergan, especially in the cosmetic and specialty drug sectors. This can enhance Pfizer's product offerings and market competitiveness.
Step 2
Potential counterbalances to consider
Answer
However, there are potential challenges associated with this merger. Allergan's established presence in the market may not fully align with Pfizer's operational goals, leading to costly market research to understand consumer needs.
Human resource issues can also arise, particularly concerning job redundancy concerns related to the merger. The uncertainty about job losses could affect employee morale and operational continuity.
Cultural differences between Allergan and Pfizer could affect management practices and marketing strategies. If objectives do not align smoothly, it could lead to conflicts within the organization.
Lastly, while focusing on reducing the tax bill is beneficial, it may inadvertently harm Pfizer's reputation if perceived as prioritizing profits over responsible business practices, especially in the pharmaceuticals sector, which is highly scrutinized.
Step 3
Short-term and long-term judgment
Answer
In the short term, the merger presents significant advantages such as immediate financial benefits from lower tax rates and enhanced access to new markets. Moreover, the expertise Allergan brings can aid Pfizer in ventures related to their specialty products.
In the long run, however, difficulties may surface. Effective integration of the new business will be crucial, and Pfizer must ensure that the potential benefits are realized without incurring excessive costs or operational disruptions associated with managing a larger corporate structure. The success of the merger ultimately depends on Pfizer's ability to leverage the synergies created while managing the complexities of a global operation.