Here's USA Today's version (from AP):
01/20/98- Updated 05:09 PM ET
Drug merger would be biggest ever
NEW YORK - SmithKline Beecham and rival drug maker American
Home Products said Tuesday they are considering the biggest
corporate merger ever, sending stocks of other pharmaceutical
companies higher as Wall Street poised for another round of merger
mania.
Investors speculated that if two of the world's biggest drug makers
combine, the deal would set off a repeat of the drug industry's 1996
frenzy among drug makers.
"There will be another wave of consolidation," said Hemant K. Shah,
an independent drug industry analyst in Warren, N.J. "If this goes
through, some other companies will have to think. How do you
compete?"
In separate statements, American Home and SmithKline Beecham said
there are no guarantees the talks will lead to a merger. The drug makers
declined further comment until the discussions are concluded.
It remains unclear how the deal would be structured, but analysts say
the combined company would likely be a merger of equals based
somewhere in the drug corridor that stretches from New York to
Philadelphia.
At Tuesday's stock price, American Home is worth about $58 billion.
If SmithKline, valued at more than $63 billion, were to buy American
Home, the deal would eclipse the most expensive merger announced to
date, the planned buyout of MCI Communications by WorldCom for
stock valued at about $37 billion.
The combined company would have combined sales of about $24
billion, giving it the most health-care revenues of any company. Five
other companies, including Nestle, have more overall sales, but much of
their revenue comes from outside the health care business.
"On top of that they will become the leading consumer brand company
in over-the counter products," Goldman Sachs analyst Prem Lachman
said.
A merger would also unite two companies divided by history and an
ocean. Madison, N.J.-based American Home - whose vast product
line includes Robitussin cough medicines, Advil pain relievers and the
nation's most-prescribed drug, the estrogen compound Premarin - is
82-years old.
Its drug-making division, Wyeth-Ayerst Laboratories, goes back to
1860, when John Wyeth and his brother Frank established a drugstore
in the unit's current home of Philadelphia.
London-based SmithKline - maker of the antidepressant Paxil and
over-the-counter products such as Aquafresh toothpaste, Geritol
vitamins, the Nicoderm anti-smoking patch and Tum's antacids - was
created in the 1989 merger of SmithKline Beckman and Britain's
Beecham Group.
Its roots go back to 1830, when John K. Smith opened his first drug
store in Philadelphia, where the company keeps its U.S. headquarters.
News of the talks drove the price of American Home Products' stock -
the most heavily traded issue on the New York Stock Exchange - up
$13.56 1/4 to close at $94.25 Tuesday. SmithKline Beecham's
U.S.-listed shares rose $2.56 1/4 to $59.56 1/4 on the NYSE.
SmithKline's 4% increase followed a 7% rise on the NYSE Friday.
Shares of the nation's largest drug companies bolted on news of the
talks, led by Warner-Lambert, up $9.12 1/2 to $138.25 on the NYSE.
Shares of Merck, Bristol-Myers Squibb, Glaxo Wellcome, Eli Lilly,
Pfizer, Pharmacia & Upjohn and Schering-Plough all saw substantial
gains.
The potential deal highlights a fact of life in the drug industry: size
matters.
The combined company's mass would make it a powerhouse in
cardiovascular, central nervous system and arthritis drugs, antibiotics
and vaccines and give it competitive advantage in several areas.
It could cut 20 to 25% of its operating expenses in by eliminating
duplication in research, manufacturing and administration, Shah said.
Its combined $3 billion in annual research and development funds, the
key to future earnings growth, would exceed the $1.7 billion spent by
Whitehouse Station, N.J.-based Merck and the nearly $2 billion spent
by New York-based Pfizer.
The new company's research spending would likely be $2 billion to
$2.5 billion after it ends some duplicated projects, analysts said.
American Home would also gain one of the nation's largest pharmacy
benefit managers, SmithKline's Diversified Pharmaceutical Services.
PBMs contract with health maintenance organizations to buy
prescription drugs at discount prices. PBMs can use their influence to
help get their parent company's drugs on the list of medicines HMOs
approve for their patients. Merck and Eli Lilly already own pharmacy
benefit businesses.
At 60, American Home's chief executive, John R. Stafford, could be
ready for a successor such as his friend, SmithKline CEO Jan Leschly,
57.
American Home's stock has been pummeled since it recalled two diet
drugs, Redux and Pondimin, at the U.S. Food and Drug
Administration's request in July. A Mayo Clinic study had linked the
drugs with heart-valve damage. The company also faces lawsuits from
50,000 women who claimed the company failed to warn them
adequately about the side-effects of its Norplant surgically implanted
contraceptive.
By The Associated Press |
