AP NEWS
Related topics

Glaxo, SmithKline Renew Talks

January 14, 2000

LONDON (AP) _ British pharmaceutical heavyweights Glaxo Wellcome PLC and SmithKline Beecham PLC said Friday that they’ve resumed merger talks. If successful, a union between them would create the world’s largest drugmaker.

The renewal of talks, which collapsed two years ago over differences between their top executives, highlights the pressure that even the biggest pharmaceutical firms are under to consolidate with industry rivals as a way to afford the rising costs of developing and selling new medicines.

The announcement came just a day after Pfizer Inc. emerged as the likely winner in the battle for U.S. drugmaker Warner-Lambert Co. Bowing to pressure from its investors, Warner-Lambert management said they would negotiate a buyout from Pfizer, backing away from a previously announced merger deal with American Home Products Corp.

Glaxo Wellcome and SmithKline Beecham confirmed that were ``in discussions which may or may not lead to a merger of equals.″ They refused to elaborate.

Glaxo’s strength lies in its top anti-migraine drug, Imitrex, and in treatments for asthma and viral infections including HIV.

SmithKline’s top products include the antibiotic Augmentin, the antidepressant Paxil and a new diabetes drug, Avandia. It also has a strong vaccines business.

Analysts said the merger would involve Glaxo buying SmithKline in a stock deal. Glaxo has a market capitalization of $101.0 billion and SmithKline has a $71 billion market capitalization.

``I think the merger makes a great deal of sense,″ said Anthea Gaukroger, an industry analyst at London-based brokerage Greig Middleton.

The two companies have complementary drug portfolios and could save as much as $2.4 billion in costs on overlapping operations, she said. A merger would let them pool their research and development funds and would give the merged company a bigger sales and marketing force.

``It gives them the opportunity to do more and better on a global scale,″ said Martyn Postle of Cambridge Pharma Consultancy.

Analysts predicted that a merger could occur within a week.

The announcement sent their U.S. shares surging on the New York Stock Exchange. Glaxo rose $2.25 to $60.25, while SmithKline rose $3 to $69.75.

Worldwide pharmaceutical sales of the combined company would total $17.8 billion, based on 1998 annual figures. That would surpass the $15.9 billion in sales of a combined Pfizer-Warner-Lambert.

Analysts said the British firms were able to start a new round of merger talks following the announcement in December that SmithKline Beecham chief executive Jan Leschly plans to resign by April. Leschly’s inability to agree with Glaxo Wellcome chairman Sir Richard Sykes was seen as the main reason for the suspension of earlier negotiations.

``I think it’s most likely to go ahead this time. The big stumbling block was management. I think we’ve gotten over that with the retirement of Jan Leschly,″ said Susan Haylock of Deutsche Bank.

If the firms merge, analysts suggested that Sykes would take over as chairman of the new entity, with Leschly’s deputy, Jean-Pierre Garnier, becoming its chief executive.

Glaxo Wellcome and SmithKline Beecham have long pondered a merger, but Pfizer’s apparent success in mounting a hostile bid for Warner-Lambert has given new impetus to such a deal.

``That just intensifies the pressure on everyone in the industry to find critical mass,″ Haylock said.

Other mergers and takeovers are likely to follow, with Novartis, Bristol-Myers Squibb, Eli Lilly, Roche and American Home Products all seen as candidates for consolidation.

If Glaxo Wellcome merges with SmithKline Beecham, it would have just 7.5 percent share of the global pharmaceutical market. Pfizer, if it buys out Warner-Lambert, would have a 6 percent share.

To merge, the companies would need the approval of the Federal Trade Commission and European Union.

AP RADIO
Update hourly