Roche bid for Genentech is another sign of confidence

The hostile bid by Roche for Genentech announced today follows on from the Pfizer bid and is another sign of confidence in the pharmaceutical sector. The bid will be partially funded through the bond and commerical paper markets. Roche made the bid after calling around the banks and, presumably, being told that the bankers were confident that funds were available in the markets.

Pfizer buys Wyeth

Pfizer’s announcement that it is to buy Wyeth for $68 billion with a big slug of borrowed cash is a striking vote of faith by the markets in the drug development sector in the current financial drought. If nothing else it demonstrates that the drug development sector is going to be one of the more resilient sectors during the recession. The sector’s not totally impervious to the downturn, but it’s a lot safer than, say, motor manufacturing. As they say on the street: ‘You need your meds even if the repo man is knocking on the door‘.

The sector will, nevertheless, come under some pressure from cash squeezed insurance companies, HMOs and health payers. We are already hearing about non-essential operations being canceled due to cut backs at leading hospitals and health-related charities are finding it very difficult to raise funds. This pressure will feed all the way back down the healthcare supply chain to impact drug, medical device and diagnostics companies.

Wyeth was advised by Evercore, a small boutique, and Morgan Stanley. Pfizer financed the deal by borrowing $22.5 billion from a consortium of five banks: Goldman Sachs, Bank of America, JP Morgan Chase, Barclays and Citigroup. Each bank is ponying up $4.5 billion. More details about the deal can be found here and here.

Analysts point out that the poor credit market has enabled Pfizer to purchase Wyeth at a lower price than it might otherwise have had to pay had competing bids emerged. The squeeze on credit means there are unlikely to be any other contenders for Wyeth. Pfizer’s purchase comes with strings attached. Should the deal fail Pfizer will have to pay a $4.5 billion break up fee, almost double the amount expected in better economic times.

As a result of the Pfizer deal, Wyeth withdrew from talks to buy Dutch vaccine firm Crucell. Crucell shares fell 12.6%.

As a side note Everecore’s website was down when we went to have a look at it this morning. The weight of unemployed bankers trying to submit their CVs perhaps?

Is there a ‘halo effect’ in partner perception surveys?

One issue that has interested us for some time is the following question: to what extent does a positive or negative overall impression of an alliance partner or another company result in the company being positively or negatively perceived across all factors? This cognitive bias has been termed the ‘halo effect’ and was first identified by Edward Thorndike. From Wikipedia:

In a psychology study published in 1920, Thorndike asked commanding officers to rate their soldiers; Thorndike found high cross-correlation between all positive and all negative traits. People seem not to think of other individuals in mixed terms; instead we seem to see each person as roughly good or roughly bad across all categories of measurement.

In order to assess the degree to which partner or image ratings are subject to a halo effect we recently tested our database of partnership ratings. In the database we have more than 1,000 question sets where the respondent has been asked to rate a company overall and then to rate the company on up to 50 different individual factors. We took a random subset of 57 ratings.

If the halo effect is present we should find that respondents rating companies very positively rarely rate the company poorly on each individual question. Equally respondents rating companies very poorly should show a considerable bias against giving the company very high ratings on specific questions.

In fact we found that 10% of the ratings given by respondents rating the company very favourably overall were poor (n=1,335). Nearly 40% of the ratings given by respondents rating the company very poorly overall were high (n=412). This leads us to conclude that respondents are able to maintain a view of companies that is nuanced and that they are able to differentiate between different aspects of a company’s capabilities.

Google ranked most attractive technology company

Technology experts ranked Google, the search giant, the most attractive company in an online survey conducted by Silico Research in November and December 2008. The survey set out to capture the perceptions senior technology professionals in both private and government organisations have of technology companies with the highest revenues. ‘Technology’ companies were defined as software companies and information service companies. Respondents were expected to rate at least three companies from a list of twenty. Computer and technology manufacturers and manufacturers of networking and telecommunications were excluded from this list.

Survey respondents were asked to rate companies on a scale from 1 up to 7 across seven different factors: trust, financial strength, innovation, leadership skills, quality of people, products and social responsibility. Scores of ’1′ represented ‘very poor’ and ’7′ represented ‘very good’.

The scores were used to calculate rankings for each company. In order to take into account the typical high positive skew and minimal differentiation resulting from rankings based upon mean ratings in such surveys, Silico treated a rating of around 5 out of 7 as the normal expected mean. Data on either side of the expected mean was grouped into the ‘top box’ and the ‘bottom box’. All ratings below the expected mean (1-4) were grouped into the bottom box and all the ratings above (6-7) were grouped into the top box. The top and bottom boxes were then netted out to give an overall net image rating, expressed as percentages and ranked accordingly. To calculate the global ranking Silico netted the good ratings (6-7 out of 7) and bad ratings (1-4 out of 7) across all measures and expressed this as a percentage of the total ratings for each company.

Overall the survey respondents contributed 566 company assessments and 2,459 ratings across all questions covered by the survey. Only companies that received more than 75 ratings across all factors were included in the rankings. In all twelve companies were ranked.

Google was ranked the top most attractive technology company globally (72% ) and across all measures. It towered above the other companies in the ratings it received for the quality of its people, financial strength, leadership skills, products, social responsibility and innovation. Adobe Systems was ranked the second most attractive company globally (39%), and for its products and innovation. Both Google and Adobe Systems received their highest ratings for innovation.

IBM also did well in the survey, ranking second highest for social responsibility and third for financial strength, products, trust and globally (31%). Globally Microsoft ranked fourth (25%), coming second for its financial strength and quality of people and third for its leadership skills and innovation. Its image was poorer for trust, ranking sixth, and products, ranking seventh. Yahoo did fairly well in the survey, ranking fifth overall (14%) and fourth for its products, innovation and trust.

Companies ranked mid-way in the global rankings included Symantec, ranking sixth (0%) and SAP, ranking seventh (-10%). Symantec was fifth for trust and its quality of people and products and seventh for leadership skills. It came ninth for financial strength. SAP scored highest for financial strength, leadership skills and social responsibility, ranking sixth for each measure. The weakest scores SAP received was for products (ranking tenth), quality of people (ranking ninth) and for innovation and trust (ranking eighth).

Companies that fared the worst in the survey globally were Capgemini (-36%) and Electronic Data Systems (-35%). Both companies received far more poor ratings than good ratings. Just behind these companies were Computer Sciences (-19%), Computer Associates (-18%) and Oracle (-17%).

Capgemini had the poorest reputation out of all the ranked companies for leadership skills, quality of people and products, and was second to bottom for innovation. Electronic Data Systems came just above Capgemini for leadership skills and products and received the lowest rank for innovation. For social responsibility Electronic Data Systems scored just higher than Oracle, which was ranked bottom. In addition to its poor image for social responsibility, Oracle was second to last for trust and quality of people. It did better on financial strength, ranking fifth. Computer Associates received the worst ranking of all companies for trust, and was second to last for financial strength. For leadership skills and innovation, Computer Sciences ranked third from bottom. The company did better on trust, quality of people and financial strength, ranking seventh.