Market analysts had expected the company to make higher cost-cutting measures than the £1.1 billion announced. The expected merger of Pfizer and Warner-Lambert would mean that it would have a world market share of drug sales of 6.3 percent, just behind that of Glaxo SmithKline, placing them in fierce competition with the new company.Glaxo SmithKline will have global drug sales of £17 billion, and the combination of their crucial research and development arms is expected to save them £250 million. But this, some say, won’t necessarily sink the deal, at least in the long run. But many businesses, especially those burdened by legacy systems, still struggle to transform their operations to cater to the increasingly empowered digital customer. Projected growth targets were also lower than had been anticipated.Glaxo Wellcome and SmithKline Beecham have been involved in merger discussions over the past two years. As well as producing genetically modified seeds, Monsanto is also a major drug manufacturer. On January 18, UK pharmaceutical companies Glaxo Wellcome and SmithKline Beecham announced that they would be merging their operations. Sign up for the weekly Knowledge@Wharton e-mail newsletter, offering business leaders cutting-edge research and ideas from Wharton faculty and other experts. Kirsten Birkett examines the legal structure adopted by the parties and the process of obtaining clearance for the merger in the EU and the US. Health services throughout the world are demanding that drug companies reduce their prices and supply them with the cheapest pharmaceuticals. "The basic business of the drug industry is developing drugs and getting them to consumers and physicians," says Danzon, who has done extensive studies on the pharmaceutical industry. The proposed acquisition of SmithKline Beecham by Glaxo Wellcome – in a stock swap valued at $75.7 billion may be creating the world’s largest pharmaceuticals company, but the question remains: Is it worth the effort? In 1998 a proposed merger was shelved after it was reported that there were major disagreements over how the new company would be led. The merger last year by scheme of arrangement between Glaxo Wellcome and SmithKline Beecham has created the world's largest drug company by market share. "The key question is, will the combined entity be more productive than the sum of the two parts separately? "It puts huge pressure on them to continue to perform. Trade unions in Britain have stated that up to 15,000 jobs could go world-wide, out of a total workforce of 105,000, and it is feared that between 2,000 and 5,000 jobs could go within the UK.Roger Lyons, the general secretary of the Manufacturing, Science and Finance union (MSF), said that many jobs were threatened in Britain. On Tuesday, January 18, the first business day after the announcement of the merger on Monday, both company stocks took a beating in London and the U.S. On the NYSE, SmithKline dove eight points to $61 5/16 a share, an 11% slide, and Glaxo fell 5 15/16 points to $54 1/16, a 9.9% decline significant losses even in an era of volatile stock swings. "The most important aspect of a merger like this is making sure of the synergies, that things fit together long-term. Last week, Warner Lambert announced that it was to abandon its planned merger with AHP and would instead seek to reach an agreement to link up with Pfizer. Recently, Zeneca, the other main player in the UK drug market, merged with the Swedish firm Astra.Two other major European drugs companies, Hoechst and Rhone Poulenc, have also agreed to merge their pharmaceuticals business to form a new company Aventis. Glaxo Wellcome was created in 1995 in a £9 billion deal, at that time the largest merger ever in the UK.Since then there have been numerous job losses and cutbacks as the companies have sought to retain and increase their share of the world drug market. We see this merger as a window of opportunity that we want to take advantage of." Danzon says that most of the bigger firms, such as Merck and Pfizer both of which are smaller than the new Glaxo/SmithKline combination – already have a large enough research budget to get economies of scale. It will employ a global sales force of 40,000 around the world, including 7,200 representatives stationed in the US. "You have to go for blockbusters. Will the costs in time and money of integration eat up the initial savings? Rising research and development costs have meant that drug companies have been unable to “go it alone” and have had to utilise the expertise and resources of other drug companies in order to survive in a cut-throat market.Both Glaxo Wellcome and SmithKline Beecham are themselves the products of mergers. There needs to be critical mass for better research and development and a global sales staff for these important drugs." I also worry whether the big company will have what it promises a faster-growing model. "You can’t afford to do niche products when you are Glaxo," said Chaffkin. In some ways, the outlook for a combined Glaxo SmithKline comes down to an issue of how big is big enough in the drug business. He said that the new company would be taking decisions of strategy away from its current UK base.Whilst avoiding specific details, company spokesmen admitted there would be redundancies. If they are faced with the loss of patents on drugs that produce revenue, or if the drugs in the pipeline are not as successful as they might have hoped, one way to get short-term breathing space is to merge. Those in disagreement, Glaxo chief executive Sir Richard Sykes and his SmithKline counterpart Jan Leschly, have now settled their differences. The company will have the largest annual research and development budget in the world at £2.4 billion. Glaxo SmithKline will be the largest drug company in the world as well as the largest company outright in the UK. On October 5, 1999 Glaxo Wellcome announced plans to shed 3,400 jobs globally, including 1,700 in the UK over a four-year period. Aventis is set to save $1.2 billion a year when the merger is completed and many of these savings are to come from the lower taxes the group will have to pay by basing its headquarters in France.Pharmacia, a Swedish-based pharmaceutical company that had previously merged with US firm Upjohn, has now bought out Monsanto.