Glaxo-SmithKline Aiming for 'A Merger of Equals'
Williams, Philip, The Birmingham Post (England)
Glaxo Wellcome and SmithKline Beecham said yesterday they had reopened merger talks to create what would be the world's biggest pharmaceutical company worth more than pounds 109 billion.
In a brief statement, the two British drug companies, which failed to agree merger terms two years ago, said they were "in discussions that may or may not lead to a merger of equals".
Industry analysts said the deal was likely to be structured as a no-premium bid by Glaxo for its smaller rival, valuing the transaction at close to pounds 50 billion.
Shares in SmithKline closed 7.1 per cent higher at 847p and Glaxo added 4.5 per cent at pounds 18.18 as investors relished the prospect of a deal that would strip out costs and boost the combined group's research and development and sales clout in a consolidating industry.
Glaxo's market capitalisation was pounds 63.3 billion at the close of trade on Thursday while SmithKline was valued at pounds 44.4 billion, suggesting the combined group will vie with BP Amoco, currently worth around pounds 110 billion, for the position as the largest company in Britain.
Mr Paul Diggle, pharmaceutical industry analyst at SG Securities, said cost savings meant a combined group could deliver earnings growth of around 20 per cent, against the mid-teens expected from the two firms independently.
Other analysts applauded the industrial logic of the proposed tie-up.
"If this is consummated it will send a chill down the spine of every other industry executive because this creates a very different beast, a super company with true competitive advantage," added Mr Steve Plag at Credit Suisse First Boston.
"These super companies - of which Pfizer-Warner-Lambert will be another if it goes through, which looks likely - will have market share well in excess of five per cent and R&D expenditure approaching pounds 2.4 billion."
In February, 1998, a planned merger between Glaxo and SmithKline foundered because of a clash between Glaxo executive chairman Mr Richard Sykes and SmithKline chief Mr Jan Leschly over who should run the group.
Since then, Mr Leschly has announced plans to retire in April, 2000, while Sykes is contemplating a role in academia after he reaches 60 in 2002.
"The message to the two companies this time must be 'don't screw up' - it's as simple as that," Mr Peter Cartwright, of stockbroker Williams de Broe said. …