Bob and all: any impact on QDEL/GLX collaboration based on SKB/GLX merger?
SmithKline, Glaxo Discussing Merger
By JANA S. MOORE
.c The Associated Press
PHILADELPHIA (AP) - The British drug giants SmithKline Beecham PLC and Glaxo Wellcome PLC are discussing a combination that would be the largest corporate merger in history and would create the world's biggest pharmaceutical company.
In announcing the talks Friday, SmithKline said previously announced merger discussions with American Home Products Corp. had ended without agreement. American Home spokesman Lowell Weiner confirmed the merger talks had been scrapped but declined to comment on why the talks broke down or whether another merger partner would be sought.
SmithKline has a market value of about $70 billion and Glaxo Wellcome $96 billion. Financial terms of a merger were not disclosed. But if Glaxo Wellcome winds up buying SmithKline, the deal would eclipse the most expensive merger announced to date, the planned buyout of MCI Communications Corp. by WorldCom Inc. for stock valued at about $37 billion.
A merger would unite Glaxo Wellcome's product line, which includes ulcer drug Zantac and AIDS medication AZT, with SmithKline's antidepressant Paxil and over-the-counter products such as Aquafresh toothpaste, Geritol vitamins, the Nicoderm anti-smoking patch and Tums antacids.
Talks with Glaxo Wellcome have already gotten down to specifics. Glaxo Wellcome shareholders would hold 59.5 percent of the stock in the new company and SmithKline shareholders would hold 40.5 percent, the companies said in identical announcements.
Analysts have said one area of dispute in SmithKline's earlier talks with American Home Products was which company would have a larger share.
Analyst Hemant K. Shah said a merger of SmithKline and Glaxo would make sense.
''These are two huge companies with relatively little product overlap and very comparable organizations,'' he said. ''That means they can eliminate 20 to 25 percent of their operating expenses, which is a huge savings that can be plowed back into research.''
If the companies merge, they will control 7.5 percent of the pharmaceutical market worldwide, said the independent analyst from Warren, N.J.
Shah added that the job cuts will be steep, in the tens of thousands.
''I think this is going to go through because they have done it on their own,'' he said. ''Unlike the SmithKline-American Home Products talks, there have been no rumors about these two companies. It's very clear that these two companies want to get this done.''
The two British drug companies also might be better suited for a merger because they have more similar corporate cultures. The combined business would be based in Britain, the companies said.
Glaxo spokeswoman Nancy Pekarek said a final announcement most likely would not come for weeks. She declined to discuss the talks further.
But the companies did say the board of a merged business would be split between the partners, with Glaxo's chief executive, Richard Sykes, becoming executive chairman and SmithKline CEO Jan Leschly chief executive.
The companies said the attraction for both businesses would be in creating the world's largest research and development organization.
London-based SmithKline was created in the $8 billion, 1989 merger of SmithKline Beckman Corp. and Britain's Beecham Group PLC.
Its roots go back to 1830, when John K. Smith opened his first drug store in Philadelphia, where the company still has its U.S. headquarters.
Glaxo Wellcome was created when Glaxo PLC completed a hostile $15 billion takeover of rival Wellcome PLC three years ago. That deal still ranks as the drug industry's second-biggest merger ever, trailing only the $30 billion combination of Swiss firms Sandoz AG and Ciba Geigy in May 1996.
Glaxo Wellcome's Zantac was the top-selling prescription drug in the United States until losing its exclusive patent protection last July.
In October, Glaxo named as its chief executive Robert A. Ingram, who had been head of its U.S. subsidiary, Glaxo Wellcome Inc., which is based in Research Triangle Park, N.C.
By switching merger partners in mid-negotiations, SmithKline may simply have opted to pursue what company executives considered a better deal. Glaxo is bigger than American Home, and has not suffered the kinds of setbacks the American firm saw in 1997. And in the drug industry, size matters.
American Home faces lawsuits from 50,000 women who claim the company failed to warn them adequately about the side-effects of Norplant, the company's surgically implanted contraceptive. And in July, at the Food and Drug Administration's request, the company recalled two fast-selling diet drugs, Redux and the Pondimin brand of fenfluramine - half of the popular fen-phen diet cocktail. A Mayo Clinic study had linked the drugs to heart valve damage in
as many as one-third of the patients who tried them, although American Home criticized the study's methodology.
Lawyers have been gathering in conferences across the country to share strategies on how to sue the firm. And analysts say suits could cost the company a total of $2 billion to $3 billion.
The company's outlook had improved after analysts downgraded their assessment of the impact of the drug suits from earlier estimates of $4 billion to $8 billion. The Madison, N.J.-based maker of Advil pain relievers, Centrum vitamins and Premarin estrogen reported a 12 percent earnings increase earlier this week after posting a decline in the third-quarter.
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