AA-2010-005

August 2, 2010





The Acquisition of Serono by Merck:
Developing an Integrative Plan for the Transition

This assessment examines the acquisition of Serono by Merck, as one of the most
discussed but also effective operations in recent years, within the pharmaceutical
industry. Students are asked to propose a leadership and cultural due diligence on
how the acquisition should occur to be sustainable and long termed oriented. This
assessment is suitable for use in both undergraduate and graduate courses in services
or operations management.

Keywords: Mergers & acquisitions, leadership, organizational behavior, due diligence,
sustainability, services management, operations management, international
management, change management, pharmaceutical industry, Serono, Merck

Geographical setting: Switzerland













Authentic Assessment

Authentic assessment is a form of assessment in which students are required to perform tasks
that demonstrate the meaningful application of knowledge to situations that mirror the
kinds of problems they are likely to face in the real-world. An authentic assessment item
can be used to facilitate student learning in a number of ways, such as in-class discussion,
as an individual assignment, a group assignment or for examination purposes.


This authentic assessment was prepared by Professor Mark Esposito. The information presented
here has been compiled from published sources and is not intended to serve as endorsements,
sources of primary data, or illustrations of effective or ineffective management.

Copyright 2010 by U21Global Graduate School Pte Ltd. To order copies or request permission
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The Acquisition of Serono by Merck: Developing an Integrative Plan
for the Transition
AA-2010-005


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The Acquisition of Serono by Merck:
Developing an Integrative Plan for the Transition


The Context
Serono is a biotechnology company headquartered in Geneva, Switzerland. The
company was founded in 1906 in Italy. A key step
1
in its development was the
discovery of a method of extracting urinary gonadotropins by Dr Piero Donini,
allowing the company to become a leader in the supplier of fertility medications,
notably Pergonal. Serono was incorporated in 1987 and the holding company, Ares-
Serono S.A., changed its name to Serono S.A. in May 2000.
Serono as a stand-alone company
develops and markets pharmaceuticals
in the fields of Reproductive Health,
Multiple Sclerosis, Growth and
Metabolism and Dermatology. It is a
world-leader in the infertility market with
an estimated market share of 60 percent,
worldwide revenues of USD2,500 million,
and a net income of USD494.2 million,
making it the third largest biotechnology
company in the world. Serono's most
important product accounted for 31.6
percent of the company's sales in 2004.
The eight biotechnology products
2
are
available in four core therapeutic areas:
neurology for the treatment of relapsing
forms of multiple sclerosis, reproductive
health for treatments of infertility,
dermatology, where Serono has
launched biologics in Europe for
moderate-to-severe psoriasis, and growth
and metabolism for treatments for HIV-
associated wasting and growth
deficiencies. Its products are sold in over
90 countries. The company also
conducts research in oncology and
autoimmune diseases.

Image source:
br3akthru / FreeDigitalPhotos.net

In Sept. 2006, Serono was sold to Merck KGaA
3
for ! 10,6 Billion; Merck KGaA paid CHF
1,100 for each share. The new entity, which merges Serono with Merck's Ethicals
division, is called Merck Serono. Its headquarters is in Geneva, within the new Serono
facilities. The US operations are planned to remain near Boston. The process of

1
FundingUniverse.com. (n.d.). Serono S.A. Retrieved August 2, 2010, from
http://www.fundinguniverse.com/company-histories/Serono-SA-Company-History.html
2
Merck Serono S.A. (2010, April 27). Therapeutic areas. Retrieved August 2, 2010, from
http://www.merckserono.com/en/therapeutic_areas/therapeutic_areas.html
3
Merck KGaA. (2010, April 27). Retrieved August 2, 2010, from
http://www.merck.de/servlet/PB/menu/1001723/index.html
The Acquisition of Serono by Merck: Developing an Integrative Plan
for the Transition
AA-2010-005


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Copying or posting is an infringement of copyright. Email cases@u21global.edu.sg

merging
4
started in January 2007 after various business regulatory reviews and phases
are complete. Until that time, Serono and Merck KGaA
5
still operate as separate
entities. The new, combined entity, Merck Serono is expected to equal the sizes of
other large biotech companies. With this merge, Merck, a strong player in
pharmaceutical chemistry, aims to achieve a leading position in the biotechnology
field.


The Task

You are a consultant who has been engaged by Merck to assist the new
management team to successfully settle and implement Mercks corporate culture
into the new setting. Your expertise has been reported to the Marketing Director who
is currently puzzled on how the divergences between Seronos and Mercks
marketing orientation may be condensed and consolidated in one cohesive
programmatic plan.

Your task is to produce a report recommending how Merck should strategically lead
the transition and maintain the previous and the new acquired market shares. Given
the level of diverging segments, the respective specialised fields and the possible
level of failure each acquisition tacitly brings along, develop an integrative strategic
plan which can guarantee the successful execution of the companys objectives,
while maintaining the two companies market and consumer identities. It is thus
expected that your report should be based on theory and that applicable examples
can be used to support your statements, arguments and/or recommendations.


Guide to the Task

In preparation for your report, you can revisit the following ideas:

Analyse the nature of the acquisition and the intrinsic business intelligence
which has forged the interest of Merck to acquire Serono.

Examine models of Strategic Leadership which may be appropriate for the
type of organisational changes envisioned at Serono and Merck

While keeping in mind the business priorities for the Marketing Director, please
develop a cross cultural sensitivity approach in your plan, so that the co-
existence of the 2 corporate identities can still be kept.

Anticipate potential threats and issues which could originate if a level of
mismanagement should begin to take place.


4
Merrell, C. (2006, September 22). Sale of Serono to Merck nets family 4.6bn. The Times. Retrieved online
from http://www.timesonline.co.uk/tol/life_and_style/health/article646757.ece
5
Costello, M. (2006, September 21). Merck went for the long play. The Times. Retrieved online from
http://www.timesonline.co.uk/tol/life_and_style/health/article646493.ece