SmithKline Beecham (SB)

By Rajiv Lal, Mark Leschly
1996 | Case No. M281
In April 1994, just one week before officially taking over as CEO, Jan Leschly faced one of the most difficult decisions of his career. The management team had been negotiating with United Healthcare Corp., one of the largest HMOs, for the acquisition of one of its wholly-owned subsidiaries, Diversified Pharmaceutical Services (DPS). If pursued, the acquisition of DPS (a pharmacy benefit management company) would be a dramatic shift, moving SmithKline Beecham (SB) from being merely a product manufacturer to a service provider and manager of health care costs. The bold initiative would be expensive, approximately $2.3 billion. The upcoming board meeting would be the opportunity for Leschly and the newly appointed chairman of SmithKline Beecham Pharmaceuticals to articulate their strategic vision for the company and how SB could best position itself to ensure its future success. Was the acquisition price simply too high, relative to the benefits and potential increased product sales? Was the acquisition too aggressive?
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