From Failed Merger to Wall Street's Top Drug Pick
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Holmes Report

From Failed Merger to Wall Street's Top Drug Pick

After announcing a merger on December 19, 1999, executives of Pharmacia & Upjohn (PNU) and Monsanto Company (MTC) were met with sharp criticism and their share prices tumbled 20% as hostile shareholders voiced their disdain for a merger.

Paul Holmes

After announcing a merger on December 19, 1999, executives of Pharmacia & Upjohn (PNU) and Monsanto Company (MTC) were met with sharp criticism and their share prices tumbled 20% as hostile shareholders voiced their disdain for a merger.  Against this backdrop of a failed merger, the company launched a targeted and intensive investor relations campaign that saved the merger. The newly merged company, Pharmacia, created excellent shareholder value, nearly twice that of Pfizer, Merck, and Lilly and far outperforming companies like EMC2, Coke, and General Electric.


The fastest corporate turnaround in pharmaceutical history culminated in PNU’s first year of double-digit sales and earnings growth in 1999 after declining earnings in the recent past.  Based on mid-1999 perception studies, investors praised the management team for invigorating the company, but remained concerned about the depth of the R&D pipeline and lack of blockbuster products.

MTC was a controversial agricultural company with a highly coveted pharmaceutical business (G.D. Searle). MTC investors had long expected that the drug unit would be sold at a premium to a larger pharmaceutical company even after management had failed in two previous attempts to merge with top-tier pharmaceutical companies.

On rumors of the merger, PNU shares lost 5% of their value as shareholders expressed alarm over the merger of a pharmaceutical company with a conflict-ridden agricultural business. Monsanto shares gained 3% on renewed hopes of a high merger premium.

When the details of the merger were announced, PNU lost an additional 10% of its share value while MTC lost more than 12%.  At this point, most investors, Wall Street analysts and media outlets considered the merger failed and a large trading gap resulted.  The trading gap is an indication of the degree of doubt about the merger.  The trading gap was 16% unfavorable for MTC shareholders at its peak.

At baseline, a mere 30% of MTC shareholders supported the merger due to the absence of a long-anticipated premium.  Meanwhile, only a small and tenuous majority of PNU shareholders favored the merger. 

Two high-profile analysts downgraded the stock on the merger announcement. 


  • Change the sentiment of Wall Street regarding the merger. 
  • Narrow the gap between the trading prices of PNU and MTC. 
  • Utilize investor and analyst opinions to facilitate positive media coverage. 
  • Secure a majority vote from contentious shareholders of each company.    
  • Facilitate a turnaround of the stock price performance and achieve top-tier price performance for investors.


Applied predictive modeling to examine the pro forma shareholder base of the proposed new company.  This model included potential purchasing power of the shareholders and a measure of the sensitivity to certain fundamental characteristics of the proposed stock.

Conducted baseline perception studies of shareholders representing 20% of the companies’ shareholders.  Utilized the perception study to identify concerns, develop the road show presentation, and fine tune messaging. 

Constructed profiles of Wall Street sell-side analysts and developed an opportunity matrix to prioritize our educational efforts with the sell-side.  Key advocates were identified. 

Utilized stock surveillance firm, The Carson Group, to gather intelligence on daily changes in large institutional owners of both PNU and MTC. 

Crafted targeting lists of investors by geographical location for conducting investor meetings with management based on level of influence.

Developed tools for tracking the daily progress of the merger sentiment, including price performance charts, a share gap chart, and list of buyers/sellers.

Identified 1,000 Wall Street and international analysts who follow the pharmaceutical industry. 


Due to the controversial nature of the Monsanto business and the initial stock reaction, the media was not supportive of the merger.  As a result, a conscious effort was made to develop Wall Street analysts and investors to become vocal advocates for the merger.

Based on the stratification of sell-side analysts, Steve Tighe at Merrill Lynch, the number one rated pharmaceutical analyst, was identified as the strongest Wall Street proponent for the merger.  Investor relations worked closely with Steve and other analysts who were not restricted to publish frequent positive reports during the merger process. 

Based on the perception studies, investor relations staff conducted one-on-one meetings with targeted analysts based on the opportunity matrix and conducted a broad educational effort on the merits of the merger to both pharmaceutical and agricultural constituencies.

The team orchestrated an international road show in 14 cities in 10 days featuring senior management of the new company.  On the first day of the international road show, the company hosted a conference call with investors and outlined the rationale for the merger and the pro forma sales and earnings projections.  The trading gap narrowed to 7% during the first 2 days of the road show.

Company officials told the merger story to key investors representing over 50% of the companies’ shares.  By the end of the formal road show, the sentiment had clearly shifted.  The trading gap closed to 2% and the merger vote now exceeded the majority required.

Created a video from the perspective of external experts to support the merger rationale.

The sell-side educational effort culminated with the distribution of a 9-minute video on CD-ROM produced explicitly for these analysts.  The video was also posted on the corporate web site for individual investors.


Pharmacia Corporation became the most highly rated pharmaceutical company on Wall Street, overtaking the industry leader Pfizer.

Two sell-side analysts upgraded the stock after initially downgraded the stock.

On March 23 over 94% of shareholders from each company voted in favor of the merger.   

The merger was completed in record time by pharmaceutical industry standards.

Pharmacia is the leading stock performer in the pharmaceutical industry in 2000, up 72%.
MedAd News recognized Pharmacia Corporation as their Company of the Year.

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