Astra, Zeneca To Merge

After years of avoiding the pharmaceutical industry's merger mania, Astra AB and the Zeneca Group PLC will combine to form AstraZeneca. With combined sales of nearly $16 billion and a market capitalization of $67 billion, AstraZeneca will become the third-largest drug firm in the world, behind Merck and Glaxo Wellcome.

The boards of Astra and Zeneca unanimously agreed on Dec. 9, 1998 to the terms of an all-share merger of equals. Percy Barnevik (currently with Investor AB, a large Astra shareholder) was nominated as chairman; Tom McKillop (currently CEO of Zeneca's pharmaceuticals business) will be chief executive officer. Sir David Barnes (CEO of Zeneca Group plc) and Håkan Mogren (CEO of Astra) will serve as deputy chairmen. The Board of Directors will be drawn equally from Astra and Zeneca.

The terms of the merger are based on the recent relative equity market capitalizations of the two companies. When the deal is done, Astra shareholders will hold 46.5% and Zeneca shareholders will hold 53.5% of the enlarged issued share capital of AstraZeneca. Company analysts predict a $1.1 billion annual savings by the third anniversary of the merger.

The merger is expected to improve operating efficiency by eliminating duplicate infrastructure through better asset utilization, and the effective exploitation of economies of scale. Management of the two companies estimate that annual pre-tax cost savings of $1.1 billion are achievable from the third anniversary of the completion of the merger, with more than two thirds of this amount expected to be achieved by the second anniversary. Whilst the merger enhances AstraZeneca's growth opportunities for the future, the restructuring will result in the reduction of approximately 6,000 jobs worldwide over the three year period following the merger.

Percy Barnevik commented, "AstraZeneca combines the best of two innovative companies with successful track records of organic growth. AstraZeneca will have a strong base for considerable expansion, especially in research and development and geographical presence. I am convinced that we will see considerable growth in the years ahead." Zeneca's Tom McKillop added, "Astra and Zeneca are a perfect fit in terms of highly complementary product portfolios as well as sales and marketing organizations. A similar management philosophy, together with a strong science-based culture, make the companies natural partners."

AstraZeneca would have had pro forma 1997 pharmaceutical sales of $11.5 billion, total sales of $15.9 billion and profit before tax of $3.5 billion. The combined market capitalization is approximately $67 billion, based on the closing market prices as of Dec. 7, 1998. The combined 1997 pharmaceutical R&D expenditure would have been $1.9 billion, making it the industry's third largest.

AstraZeneca will focus on five therapeutic areas: gastrointestinal, cardiovascular, respiratory, oncology, and anaesthesia. The new firm will be headquartered in London, with R&D headquarters located in Sweden as well as "centers of excellence" in the UK and U.S. AstraZeneca plans to be listed on the London, Stockholm and New York Stock Exchanges.

For more information: Staffan Ternby, Astra Zeneca, Telephone: +46 8 553 261 07. In the U.S.: Ed Sage, Investor Relations, Astra Zeneca. Telephone: 302-886-4065.