GLAXO-SMITHKLINE BEECHAM: Surprise Mega-Merger Announced
Glaxo-Wellcome PLC and SmithKline Beecham PLC, Britain's two top drugmakers, are likely "to merge in a massive deal that will create the world's largest healthcare group" and "third biggest business," the London Times reports. In a joint statement, the pharmaceutical giants announced Friday that the mega-merger "represents a compelling strategic opportunity for both companies to enhance their industry position and to realize a meaningful increase in shareholder value" (Buckley, 1/31). Top officials from Glaxo and SmithKline "plan to start talks tomorrow in London to finalize the details of their $165 billion merger," the Financial Times reports. The new company, "likely to be called Glaxo SmithKline," would have three of its five top management positions filled by Glaxo executives, with Glaxo Chair Richard Sykes assuming the new company's executive chair (Green, 2/2). The Philadelphia Inquirer reports that the new company's headquarters would remain in Britain, with SmithKline's US headquarters staying in Philadelphia. SmithKline "would be the smaller partner," taking 40.5% of the shares and Glaxo holding the lion's share at 59.5% of the combined business. The Inquirer notes that the "two companies have similar product lines, overlapping in gastrointestinal, antibiotic and central-nervous-system drugs. Glaxo manufactures the antiulcer drug Zantac and also has pioneered in antiviral drugs and the AIDS drugs AZT and Retrovir" (Shaw/Gerlin/Goldstein, 1/31).
Jilted And Looking
"Like a bride left waiting at the altar, American Home Products Corp. faces the daunting task of finding another merger partner now that it has been spurned by SmithKline," the Newark Star-Ledger (Silverman, 2/2). AHP's stock plunged Friday as a consequence of its failed merger talks with SmithKline, the Wall Street Journal reports. However, analysts say AHP will look for another suitor. AHP Chair John Stafford "has made it clear that he would like to make another major deal. I'm sure he's going to try to find somebody else," said HKS & Co. analyst Hemant Shah (Winslow/Tanoye, 2/2). "Mid-market groups such as Schering-Plough, Astra and Zeneca would be obvious beneficiaries of a deal with AHP," the Financial Times reports (Corrigan, 2/2). USA Today reports that the "Glaxo-SmithKline merger will put pressure on AHP and the rest of the industry to find partners and become big enough to compete in an industry that has seen a wave of mega-mergers over 10 years" (Valdmanis, 2/2).
The Wall Street Journal reports that unlike drug industry mergers of the past that were driven primarily by "gray-suited executives seeking to cut costs, this time it is the guys in the white lab coats calling the shots." According to the Journal, "[a]n explosion in scientific breakthroughs has suddenly created vast research opportunities that are overwhelming drug companies' budgets and management expertise." New "gene-sleuthing techniques" and "computerized chemistry" are "producing countless tempting leads for treating illnesses ranging from AIDS to cancer, from heart disease to depression." The Glaxo-SmithKline merger will allow the two companies to pool research budget and staff to take advantage of new research opportunities (Tanouye/Langreth, 2/2).
The Glaxo-SmithKline merger "would create ... losers on Wall Street and Main Street alike, with stocks expected to make big moves starting today," the New York Daily News reports (2/2). And the implications are "enormous" for "British industrial and science policy," notes a Financial Times editorial. Proponents of the deal are "pointing out that it would create a British champion in a fast-growing research-based industry, with a formidable lead over international competitors. ... However, there may be a price to pay in terms of job losses" (2/2). The New York Times reports that the Manufacturing, Science and Finance Union "urged the British government yesterday to block the deal." The British labor union "complained that the merger could result in the loss of 10,000 jobs in Britain and severely diminish the country's pool of skilled scientists." While neither company would discuss the merger's effect on job losses, analysts predict it could result in a 10% loss (2/2). Britain would be "hard-hit" if a consolidation occurs, but the Philadelphia area "is likely to be a layoff target, with the combined companies favoring the less-expensive business climate of North Carolina, where Glaxo has it US base," the Philadelphia Inquirer reports (Shaw, 2/2). And in the Research Triangle area in North Carolina, "Glaxo workers here can't help wondering if the record-shattering deal would lead to the kinds of massive layoffs that have been triggered by other pharmaceutical industry marriages," the Raleigh News & Observer reports (Ranii/Obermayer, 2/1).