Eli Lilly and Company

17 Pages Posted: 21 Oct 2008

See all articles by Robert F. Bruner

Robert F. Bruner

University of Virginia - Darden School of Business

Casey Opitz

University of Virginia - Darden School of Business

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Abstract

This negotiation case is meant to be used in conjunction with "Hybritech, Incorporated (A)" (UVA-F-0792); half the class works from one case and half from the other. Lilly is considering acquiring Hybritech, but the genetic-engineering company's future cash flows are difficult to predict and value. Both companies want to effect the merger, but the cases, which provide essentially the same information in all other respects, provide widely divergent projected cash flows. The "Hybritech, Incorporated (B)" case (UVA-F-0793) is the follow-up case dealing with the payment structure of the acquisition.

Excerpt

UVA-F-0794

ELI LILLY AND COMPANY

In September 1985, Ron Henriksen, director of financial development at Eli Lilly and Company, was preparing for final negotiations between his company and Hybritech, Inc., a biotechnology firm specializing in monoclonal antibody (MoAb) research. Lilly was already carrying out some of its own biotechnology research, but management wanted the company to become more involved in the field and believed purchasing the talent was faster than developing it internally. Lilly and Hybritech had been in and out of acquisition negotiations for about a year, but agreement appeared to be near; price and form of payment were the only remaining issues to be resolved.

Negotiations had been carried on in secret among only four people in addition to Henriksen and each company's counsel: Jim Cornelius, Lilly vice president and chief financial officer; Gene Step, president of the Lilly pharmaceutical division; Ted Greene, Hybritech chairman and chief executive officer; and Tim Wollaeger, Hybritech senior vice president and CFO. Greene also maintained close communications with Henry Hillman and Tom Perkins throughout the negotiating process. These two men represented Wilmington Investments (a 26% owner of Hybritech stock) and Kleiner, Perkins, Caufield & Byers, which, together with six other investors, owned 23% of the company (see Exhibit 1).

Eli Lilly and Company

Eli Lilly, a leading therapeutics and pharmaceuticals firm headquartered in Indianapolis, Indiana, was founded in 1876 and incorporated in 1901. Until the 1970s, the company had been closely managed by members of the Lilly family. Its hallmark conservative management style continued to be reflected by its Aaa and AAA bond ratings—one of only 18 companies with the highest quality rating from both Moody's and Standard & Poors. The company had 28,000 employees—4,500 were involved in R&D, 1,240 marketed pharmaceuticals in the United States, and 1,300 marketed them in Europe. Summary financial data for Lilly are provided in Exhibit 2.

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Keywords: acquisitions, financial analysis, forecasting, mergers, negotiation, valuation

Suggested Citation

Bruner, Robert F. and Opitz, Casey, Eli Lilly and Company. Darden Case No. UVA-F-0794, Available at SSRN: https://ssrn.com/abstract=909060

Robert F. Bruner (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-3823 (Phone)
434-924-0714 (Fax)

HOME PAGE: http://faculty.darden.edu/brunerb/

Casey Opitz

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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