• Home |
• Downloads |
• Glossary |
• Sitemap

Directors' Report:
Our performance

• Therapy area review
• Geographical review
• In the global community
• Environmental review
• Financial review
  • Measuring performance
  • Business background and major events affecting 2007
  • Results of operations - summary analysis of year to 31 December 2007
  • Financial position, including cash flow and liquidity
  • Acquisition of MedImmune
  • Restructuring and synergy costs
  • Capitalisation and shareholder return
  • Future prospects
  • Financial risk management policies
  • Critical accounting policies and estimates
  • Off-balance sheet transactions, contingent liabilities and commitments
  • Post-employment benefits
  • International accounting transition
  • New accounting standards
  • Sarbanes-Oxley Act section 404
  • Results of operations - summary analysis of year to 31 December 2006
  • Financial position, including cash flow and liquidity - 2006

ACQUISITION OF MEDIMMUNE

Acquisition accounting

Following the acquisition of MedImmune, an exercise was undertaken to allocate the purchase price between the assets and liabilities acquired (including tangible assets, intangible assets and deferred tax) and goodwill, under IFRS 3 ‘Business Combinations’. In summary terms, the purchase price for outstanding shares of $13.9 billion has been allocated between intangible assets of $8.1 billion (including assets in respect of the Synagis and motavizumab RSV franchise, FluMist, Ethyol and products in development), goodwill of $8.8 billion and net liabilities of $3.0 billion. This allocation, based on strict accounting requirements, does not allow for the separate recognition of valuable elements such as buyer specific synergies, potential additional indications for identified products or the premium attributable to a well established, highly regarded business in the innovative biologics market. Such elements are instead subsumed within goodwill, which is not amortised. This balance between goodwill and intangible assets results in an amortisation charge of approximately $435 million per annum. The acquisition can be summarised as set out in the table below.

ACQUISITION OF MEDIMMUNE

Synergies

At the time of the acquisition announcement, we identified synergy opportunities of towards $500 million in annual benefits and plans are now in place to deliver annual synergies of around $450 million in 2009 and over $500 million in 2010.

The savings represent the removal of duplication in all functional areas and the consequences of a comprehensive review of the capabilities and portfolios within the two organisations. In addition, certain capital expenditure planned before the acquisition will no longer be required, saving over $500 million. The cost of implementation of the required programmes is expected to amount to approximately $375 million and is discussed in more detail in the Restructuring and synergy costs section.

We expect that the ongoing process of consolidating the MedImmune business into our existing business will be complex and time-consuming, and it is difficult to predict how long the process will last. The process may result in business disruptions, the loss of key employees, slower execution of work processes, compliance failures due to a change in applicable regulatory requirements and other issues. In addition, the operating model for MedImmune has potential strategic benefits; however, it may not be the most efficient structure for realising efficiencies. As a result, there can be no assurances that we will not encounter difficulties in consolidating the MedImmune business as contemplated or that the benefits expected, including anticipated synergies, will be realised.