Valuations Emerge On Glaxo-SmithKline
Merger; Seen Dominant
By Erik Portanger
LONDON (Dow Jones)--Late-breaking news Friday that SmithKline
Beecham PLC (SBH) and Glaxo Wellcome PLC (GLX) were in merger
talks left analysts with mouths agape, but Monday found them getting down
to the tough job of valuing the combination of pharmaceuticals majors.
Nigel Barnes, an analyst at Merrill Lynch, has a post-merger valuation of
940 pence for SmithKline shares and values Glaxo Wellcome stock at
2,125 pence. He has lifted his recommendation on both stocks to 'buy.'
At 1305 GMT, Glaxo shares were 395 pence, or 24%, higher on the day
at 2,038 pence, while SmithKline was up 133 pence, or 17%, to 913
pence. The excitement was lifting other drugs stocks as well, with Zeneca
Group PLC (ZEN) up 283 pence, or 12%, at 2,733 pence.
Barnes believes shares of a a merged Glaxo-SmithKline - which would
boast annual prescription-drug sales exceeding $20 billion and global
market share of between 7% and 8%, will trade on a price/earnings ratio of
around 30 times forecast 1999 earnings. He projects net income of
GBP4.20 billion in 1999 and expects a merged company to have a market
valuation of GBP127 billion.
'We see its growth profile being about 20%-plus over the next three years
and settling down to between 15% and 20% once the cost savings start
coming through,' Barnes said. 'It'll be very much a top-tier global leader.'
Analysts generally see few regulatory hurdles to the merger. Glaxo and
SmithKline have highly complementary drug portfolios, with overlap seen
only in areas such as cancer therapies and herpes treatments.
'But these aren't deal-breakers,' one analyst said.
The speed with which the two companies reached a preliminary agreement
also leads many to think final terms could be just weeks away.
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