Shire's Bid for Baxalta: Beware the "Synergies"

September 8, 2015

September 08, 2015.

Regarding Shire's $30bn attempt to buy American drug rival Baxalta, CEO Flemming Ornskov's said in this week's Sunday Times that he believes Baxalta "synergies" could save his company £1bn in savings.  

These "synergies", explains Paul Heugh, CEO of consultancy Skarbek Associates, can usually be read as redundancies in an M&A context. "But," he goes on, "trimming duplicated jobs is more problematic than it appears. Synergies carry all sorts of hidden risks that are rarely considered sufficiently and most often not priced into the deal".

Analysis of the number of redundant roles, timing of exit and likely severance package will be a significant exercise in the Shire-Baxalta tie-up, says Heugh; great effort will have gone into ensuring the robustness of those numbers and managing the “off-boarding” of personnel to an aggressive timescale, ensuring cost reductions flow through. 

“But often unpriced will be the consequent reduction in focus on day-to-day business operations, the drop in morale and engagement, and the loss of vital knowledge about operations, the market, competitors, lessons learned etc…"

Hardest to ally, Heugh argues, "will be the distinct cultures of the two organizations. Shire and Baxalta will need to decide whether to choose one company culture to adopt, create a wholly new culture, or adopt a blend of both… These factors are all easily overlooked or underplayed amid the excitement of the affair and post-deal euphoria."