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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
Answer
A global merger is when companies from different countries combine assets and operations. In the case of Pfizer merging with Allergan, which is based in Ireland, this merger presents several implications:
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Tax Advantages: One major reason for this merger is to reduce the corporation tax rate for Pfizer, as Ireland offers much lower rates compared to the USA. This move can significantly increase Pfizer's available profits.
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New Markets: The merger allows Pfizer to gain access to around 70 additional worldwide markets for Allergan’s products, thus enabling the company to spread its risk over new markets and revive or extend the product life cycles of established drugs. This can lead to increased sales and market presence in the European Union (EU).
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Trade Opportunities: Being located in the EU will enable Pfizer to trade freely within member states without trade restrictions, enhancing its opportunity to increase sales in regions where it may have faced barriers previously.
Step 2
Counterbalancing factors
Answer
However, there are several potential counterbalancing factors to consider:
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Cultural Differences: Allergan is an established business in a different market. Cultural differences may exist between the organizations that could lead to conflicting strategies and management objectives.
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Human Resources: The merger may involve human resource implications, including potential redundancies, which could lead to employee dissatisfaction and loss of productivity as employees deal with the uncertainty of job security.
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Reputational Risks: There may be concerns regarding the focus on securing lower taxes, which could damage Pfizer's reputation in the pharmaceutical industry and influence future sales and partnerships.
Step 3
Long-term considerations
Answer
In the long term, while the merger initially benefits Pfizer in terms of cost reduction through lower corporation taxes and market access, it also comes with challenges. The integration of both companies needs to be managed effectively to realize synergies and not incur dis-economies of scale that can arise from complex global mergers. Furthermore, the ability to leverage Allergan's existing services in treatment markets like Botox could provide Pfizer with innovation avenues yet requires careful handling to align both company cultures.