France's chemical giant

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Summary

In 1995 Fisons plc was acquired by Pennsylvania-based Rhone-Poulenc Rorer, Inc., in turn wholly owned by France's chemical giant Rhone-Poulenc S.A. Though its status among the world's pharmaceutical companies was subsequently subsumed in layers of corporate ownership, Fisons had boasted a history of more than 300 years in business before its dismantling. Founded as a flour mill in the late 18th century, it quickly developed into one of the world's largest fertilizer producers. As the fertilizer market matured into a low-profit commodity over the course of the 20th century, the company diversified into horticultural products, pharmaceuticals, and scientific instruments. In the mid-1980s, Fisons divested its fertilizer interests to focus on the highly profitable medical side of the business. By 1993 the company was the world's third-largest manufacturer of scientific instruments and ranked among the world's 60 largest pharmaceutical concerns. Fisons' weak research and development efforts and inadequate marketing efforts, however, led to annual losses and a steep decline in its stock price mid-decade. The British company tried to fight off the advances of its Franco-American competitor, but relinquished ownership in the fall of 1995.

Fisons plc began as a flour mill and bakery founded by James Fisons in Barningham, England, in the late 18th century. In 1789 a son, also named James, started a maltings business that expanded into Stowmarket and Thetford, two river towns that helped the family businesses expand.

James Fison and Sons was formed in 1808, and by 1840 the firm was recording £100,000 in annual sales. Later that decade, the family entered the developing field of fertilizers and moved the business's headquarters to Ipswich. Within a few years, Fisons had built a manure works and was producing its own sulfuric acid. As fertilizers became the company's primary business, pesticides based on sulphur were added to the product mix.

In 1895 the company was split into two parts: James Fison and Sons and Joseph Fison and Co. During World War I, Fisons helped make explosives, but the company returned to fertilizer by the end of the war to buoy dwindling food production. When fertilizer prices plunged after the war, the two Fison companies, along with two others with which they had recently merged, were reunited to form Fison, Packard, Prentice and Co. (Fisons) in 1929.

During the 1930s, Fisons began to expand through acquisitions. The company's most significant addition was the Anglo-Continental Guano Works Ltd., which doubled the size of Fisons. Anglo-Continental was a budding conglomerate with a pharmaceutical subsidiary, Genatosan; Fisons was thus brought into that lucrative market. Fisons' acquisitions continued throughout the 1930s, and by 1939, with 39 subsidiaries, it was the largest fertilizer company in Great Britain.

During World War II Fisons felt the pressure of both a manpower shortage and increased demand for fertilizers. Some of the company's manufacturing plants were bombed as well. The company name was shortened to Fisons Ltd. for marketing clarity in 1942, and it emerged from the war with nearly two-thirds of Great Britain's fertilizer market.

Fisons made more acquisitions after the war's end, first purchasing Wiffen and Son, a fine chemicals manufacturer. The new subsidiary became part of Fisons's chemicals and biologicals division, headed by Genatosan. The Wiffen acquisition included the Loughborough Glass Company, which would later develop into Fisons's Scientific Equipment division. The purchase of Pest Control Limited during the 1950s brought Fisons into agrochemicals, a market that was closely related to the fertilizer business. Fisons hoped to capitalize on the two fields' common research, development, and distribution methods.

In 1968 researchers at Genatosan discovered disodium cromoglycate (DSCG), which was developed as the branded anti-allergenic Intal. The drug differed from its competitors because it was a prophylactic, whereas others were taken after the onset of allergic symptoms. Intal sales boosted the pharmaceutical division's profits from £1.14 million in 1968 to £2.43 million in 1970 and £5.6 million in 1973.

By 1971 Fisons had organized its many subsidiaries into four divisions: Fertilizers, Agrochemicals, Pharmaceuticals, and Scientific Equipment. The company developed these primary businesses through acquisitions as well as product and market expansion. Acquisitions were focused geographically in Europe, Australia, and the United States.

Fertilizers contributed 50 percent of the conglomerate's annual sales at that time, and Fisons fought to maintain a competitive edge in Great Britain's fertilizer market: 80 percent of the division's sales were in its home country. However, the supply side of this division was hamstrung, since its primary ammonia supplier was also its primary competitor, Imperial Chemical Industries plc. During the first half of the 1970s, Fisons tried to remedy this situation by increasing its bulk buying in global markets, especially patronizing Morocco. Morocco increased its prices six-fold in 1973, though, and other suppliers quickly followed suit. At the same time, U.K. price controls held fertilizer prices below the world market price for ammonia, effectively eliminating Fisons's fertilizer profits.

Fisons's Agrochemicals group also ran into trouble during the 1970s, when it lost a valuable customer, Ciba-Geigy Ltd. Fisons tried to support this group by increasing capital investments, especially in the United States. The company also boosted research and development funds, but since most of this division's efforts focused on creating substitutes for products that were already on the market, Fisons lacked a strong selling suit.

During the 1970s, anti-allergens comprised between 60 and 70 percent of the Pharmaceutical division's sales, but Intal had only captured 6.1 percent of the anti-allergy market, which was led by Glaxo's Ventolin. After a decade of research, the division was dealt a serious blow when Fisons decided not to market its new drug, Proxicromil, a successor to Intal, because it was found to cause cancer in animals. With Intal's nonrenewable patents set to run out in 1982, the Pharmaceutical division's prospects were not good.

In 1972 the Scientific Equipment Division was spun off from the Pharmaceutical division, and acquisitions in Germany and Australia, as well as the purchase of Britain's Gallenkamp, helped Fisons become Great Britain's top scientific equipment manufacturer. Many of Gallenkamp's contracts were with the government, universities, and hospitals, however, many of which cut their expenditures in the recessionary 1970s.

Fisons's Horticulture division was separated from the Agrochemical division in 1977. It produced and marketed amateur and professional gardening products, and its strengths were in peat-based products, especially the popular and well-established Fisons Gro-Bags--self-contained, nutritionally balanced soil sacks. The peat operations were extended with a new plant in Yorkshire and the acquisition of Howlett's, a company with peat reserves in Cumbria and Scotland. Although it was a new focus for Fisons, horticulture was actually one of the company's most secure businesses by the end of the 1970s. It was vertically integrated and held commanding shares of the markets in which it operated: 50 percent of the lawn fertilizer market; 20 percent of the solid fertilizer market; 30 percent of the peat market; and 12 percent of Great Britain's weed and pest control business.

Throughout the 1970s, Fisons had gone into debt to make a nebulous reorganization and prop up its historical focus--fertilizers--just as competition and global consolidation in this market eroded profits. At the same time, high interest rates and inflation dug into the profits Fisons managed to earn through its other operations. By 1980 Fisons's prospects looked dim. The Fertilizers division was operating at a loss; Agrochemicals could not hope to compete with the research and development outlays of bigger competitors; the Scientific Equipment division was suffering from government cutbacks; horticulture was a small, underdeveloped business; and the Pharmaceuticals division, a primary profit-maker, had suddenly lost its only long-term growth product. Fisons was on the verge of bankruptcy.

John Kerridge was promoted to chief executive officer (CEO) from executive director in mid-1980 and given the task of reversing Fisons' downward spiral. He began the reformation by cutting costs, closing down four production units and three farms in the Fertilizer division, then eliminating more than 1,000 positions in the group. Fisons's corporate headquarters were moved from high-rent London back to Ipswich, and economizations were made in the Scientific Equipment division as well. Kerridge's most fundamental change was the sale of the Fertilizer division to Norsk Hydro a.s. in 1982 for £59 million. The divestment was a radical change for Fisons and involved the disposal of what had been the foundation of the company for more than a century, as well as the division with the most sales. The troublesome Agrochemicals division was sold the following year to Schering A.G. for £60 million.

These divestments left Fisons with three primary businesses: Pharmaceuticals, Horticulture, and Scientific Equipment. The pharmaceutical group was expanded with the 1980 purchase of Great Britain's Charnwood Pharmaceuticals, Australia's Orbit Chemical Pty. Ltd. in 1982, and Italy's Intersint in 1983. Great Britain's Weddel Pharmaceutical was acquired in 1983 and merged with Charnwood, which would specialize in generic drugs.

Fisons's Horticultural operations grew geographically through a joint venture with Canada's Western Peat Moss in 1980, and the acquisition of Langley Peat North Ltd. of Alberta in 1983. These purchases gave Fisons access to large peat supplies and the North American market. The British operations were supplanted with the acquisition of Webb and Bees seed operations from Shell Holdings (U.K.) Ltd. in the early 1980s.

The Scientific Equipment division grew through the addition of Watson Victor, a New Zealand distributor of laboratory equipment, in 1982. Haake-Butler Instruments, of which Fisons owned 67 percent, was subsequently founded in the United States. Overall, Kerridge's fundamental changes improved Fisons's balance sheet dramatically; the corporation went from making annual interest payments of £13 million in 1980 to having no net borrowings in 1983. Fisons was even secure enough to make a successful stock offer of £28 million that year.

The Pharmaceutical division's continued heavy research and development expenditures resulted in two new drugs: DSCG-based Opticrom, released in 1984, and Tilade, a new asthma treatment, introduced in 1986. This division acquired Laboratorios Caesen, of Spain, in 1984, and Bracco de Mexico in 1986.

Kerridge was made chairman in 1984, and he clarified the strategy he had been using to turn Fisons around: "We wish to operate in industries of inherent attractiveness, which have potential for growth and a record of profitability of successful participants, [and] we wish to be in clearly defined business segments where Fisons can reasonably aspire to being an effective competitor by virtue of its size and its financial and managerial resources." The company would no longer operate on the fringes of its chosen markets, as it had in the 1970s. For example, Fisons concentrated on the horticulture and scientific equipment markets, which were not yet consolidated or dominated by a single powerful company. Fisons hoped to be that company.

Fisons burst onto the U.S. market for scientific equipment, which was home to 40 percent of the world's research activity, with the acquisition of Curtin Matheson Scientific Inc. (CMS) in 1984. CMS was the second-largest distributor of scientific equipment in the United States. Fisons also purchased United Diagnostics Inc. and Pacific Hemostasis Laboratories Inc., which were combined with CMS to give the latter manufacturing capacity. By the beginning of 1985, Fisons' Scientific division was the third-largest organization of its type in the world and the largest outside the United States.

Fisons continued to grow, acquiring in 1985 Murphy Chemical, which helped widen the Horticulture division's portfolio of products, extend marketing in Europe and North America, and shore up Fisons's peat supplies. Later in the decade, the Horticulture division would sell its 50 percent share of Asef-Fison B.V. to its joint-venture partner, DSM Agro Specialties B.V. In 1986 Fisons bought Applied Research Laboratories, a leading manufacturer of scientific equipment with global marketing capacity, and two years later it purchased Union Scientific Limited, a Hong Kong company.

Several important acquisitions were also made by the Pharmaceutical division in the late 1980s. Italchimici SpA, an Italian firm, and Pennwalt Corporation's pharmaceutical division, a U.S. manufacturer of ethical and over-the-counter drugs, were purchased in 1988. A French company, Gerbitol S.A., brought expertise in cardiovascular medicine, antibiotics, and dietary supplements to the division in 1989. In all, with the help of its significant 1980s acquisitions, Fisons's pre-tax profits increased by an average of 56 percent per year to £230 million (US$410 million). The corporation's market capitalization rose from £40 million in 1980 to £3 billion in 1990.

The 1990 purchase of VG Instruments, a manufacturer of mass spectrometers and surface analysis instruments, more than doubled Fisons' output of analytical instruments and catapulted the Scientific Equipment division to the number three spot in the global marketplace. It looked as if Fisons had launched its second consecutive decade of growth and prosperity. By the end of 1991, however, it was clear that problems in the Pharmaceutical division had dragged the entire company down. Late that year, Fisons revealed that two of its important new drugs, Opticrom for hay fever and Imferon for anemia, had been recalled from the U.S. market after the Food and Drug Administration (FDA) denied approval of the company's British factories. According to a 1992 Economist article, the FDA's routine check of Fisons' U.K. factory revealed warehouses with holes in their outside walls; poor record keeping; and "the possibility of rodent, insect or avian activity in the [transport] containers." Fisons's pre-tax profits for 1991 dropped 17 percent to £190 million, and the company faced required investments of more than £25 million to bring its British factory up to U.S. standards.

John Kerridge resigned "on health grounds" in mid-January 1992 and was temporarily replaced by Patrick Egan. In April of that year, Egan became chairman, while Cedric Scroggs was selected as chief executive officer. The new leaders decided to sharpen Fisons' focus on pharmaceuticals and scientific equipment by divesting its OTC drug and horticultural businesses.

In November 1992, Fisons agreed to sell its North American OTC drug operations to Swiss drug concern Ciba-Geigy Ltd. for £92 million (US$60.3 million). This segment represented approximately 50 percent of Fisons's global consumer health division sales and 40 percent of that group's profits. Egan and Scroggs recognized that the British company lacked the resources and marketing influence necessary to compete in the American consumer drug market.

Fisons's new management forged a joint development and marketing agreement with Allergan Inc., a U.S. opthalmic company, early in 1993. The arrangement called for Fisons' 400 U.S. salespeople to co-market Allergan's opthalmic drug Acular. The U.S. company's sales force, in turn, would help market Fisons' opthalmic treatment Opticrom. The arrangement presumed that Opticrom would be re-registered by the FDA. By early 1993, Fisons had made significant improvements in its Opticrom factory, but new FDA inspections had still not resulted in approval late in the year.

Fisons suffered yet another setback when it suspended development of an asthma medicine, tipredane. The company had been banking on the new drug to bolster its core respiratory business in the late 1990s. Tipredane had been licensed by Fisons from Bristol-Myers Squibb Co. and was in the midst of unsuccessful clinical trials in more than a dozen countries. The failure of tipredane left Fisons with only one new drug, remacemide--an epilepsy treatment--in development.

In May 1993 Fisons sold its North American horticulture business to a consortium led by Macluan Capital Corp. of Vancouver for US$60 million in cash and used the proceeds to reduce its debt. Fisons also planned to sell the remainder of its Horticulture division as soon as an opportunity arose. In July the company sold its consumer health products business in Australia and New Zealand to Warner-Lambert for about US$23 million. The sale included the Rosken line of therapeutic skin-care products.

Despite Fisons's early 1990s efforts to bolster its pharmaceutical business, some analysts insisted that the company had neither the research and development strength nor the marketing clout necessary to compete in an ethical pharmaceutical business that demanded frequent discovery of innovative medicines. Industry observers anticipated an imminent merger or takeover for Fisons.

Those expectations intensified as Fisons' share price declined from £2.45 in mid-1992 to £1.13 by the end of 1993. Over the course of the latter year, the company's scientific instruments division went £16 million into the red. CEO Cedric Scroggs was fired that December, Finance Director Roy Thomas took early (and presumably involuntary) retirement, and Stuart Wallis took the helm of the battered firm.

Throughout the 18 months, Wallis made a valiant and reasonably successful effort to bolster Fisons' stock price. Though the company suffered a loss on 1994, a major reorganization and divestment program eliminated at least 1,000 jobs, cut costs, and helped the firm's stock price rebound nearly 75 percent to £1.93 by mid-August 1995.

That gain was not enough to prevent Franco-American rival Rhone-Poulenc Rorer, Inc. (R-PR) from making a hostile £1.7 billion (US$2.6 billion) bid for control of Fisons on August 18th. Though some analysts thought the offering price, at 16.7 times expected net revenues, was too high, CEO Wallis complained to Chemical Marketing Reporter that the price "significantly undervalues Fisons." The British company backed up that assertion when it reported a 40 percent increase in net income, to £48.6 million, for the first half of 1995. That happy news helped advance the firm's stock to £2.60 by the end of September.

In October, R-PR upped its bid of £2.65 per share, or US$2.9 billion. Unable to find a more amicable suitor, Fisons accepted the takeover that month. Though the British firm and its many subsidiaries around the world continued to be listed among R-PR's operations through 1996, it soon became clear that the tri-centenarian entity would eventually cease to exist. Over the course of 1996 and 1997, R-PR slashed almost 3,000 redundant jobs in the United States and Great Britain, divested several Fisons divisions (including the scientific instruments business), and discontinued many of the subsumed company's pharmaceutical research and development programs.

For its nearly US$3 billion, Rhone-Poulenc Rorer got an entree into the US$15 billion and growing respiratory drug market, or more specifically, the respiratory drug delivery segment. At the time of its purchase, Fisons had two promising delivery media in the development pipeline: a non-CFC aerosol and a dry-powder inhaler. Indeed, Fisons likely played a role in an increase in sales and net at R-PR from 1995 to 1996. Year-over-year revenues increased six percent, to US$5.4 billion, and net grew by almost one-third, to US$473.5 million.

In November 1997, when Rhone-Poulenc acquired the remaining one-third of R-PR that it did not already own, Fisons' fate appeared sealed. Officials at the company's U.S. and U.K. headquarters early in 1998 asserted that Fisons no longer existed, either as a group of subsidiaries or a division.

Question-1 Discuss the evidence from the case and the use of theory, the stakeholder management by this organization; primarily its pitfalls?

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Question-2 How would you have handled this situation; suggestions to be rationalized with strong theoretical underpinning?

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Question-3 At the time of John Kerridge's resignation, what strategic options did Patrick Egan have to guide the company back to its old glory?

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