....and here's what Dow Jones had to say (Whew!):
PHILADELPHIA -(Dow Jones)- SmithKline Beecham PLC and Glaxo Wellcome
PLC late Monday said they had terminated merger discussions because they
were unable to agree on the terms of a possible deal. The combination of
the two British pharmaceutical giants, valued at about $65 billion,
would have represented the largest corporate marriage ever.
SmithKline Beecham (SBH) said its board "is aware of the significance
of this decision, particularly in light of the January 30 public
announcement (of the talks) and the substantial increase in the market
capitalization of both SB and Glaxo." London-based SmithKline indicated
that the talks foundered, at least in part, on the makeup of the
combined board.
SmithKline Beecham said that after careful consideration, however,
the board has unanimously decided that it is unable to recommend the
proposed merger to its shareholders. For its part, Glaxo said only that
"discussions on the proposed merger with SmithKline Beecham PLC have
been terminated."
The proposed combination announced late last month was tentatively
valued at between $65 billion and $70 billion, and would have created
the world's largest drug maker, with annual sales of more than $25
billion. That would have topped sales of the closest rivals, Merck & Co.
and Novartis AG. The proposed merger would have formed the largest
research and development organization in the global health-care
industry.
At the time, the announcement of the talks prompted a wave of merger
speculation in the pharmaceutical industry and a run-up in drug stocks.
Before the British drug giants announced their tentative deal,
American Home Products Corp. had been in talks with SmithKlin, but
apparently lost out.
SmithKline Beecham said Monday that its board no longer believes that
the merged group would be able to operate in such a way as to produce
superior performance for shareholders.
SmithKline said that there had been discussions and agreement in
relation to the roles of the five executive directors of the companies'
new combined board, and of other of the intended executives of the
combined group. But SmithKline said that on Feb. 20, Glaxo indicated
that it wasn't prepared to proceed on the agreed basis.
In discussions since then, SmithKline said Glaxo "has been unwilling
to proceed in accordance with the agreed arrangements."
SmithKline said discussions since Feb. 20 have revealed "a number of
differences between the companies," including differences in the
approach to the possible merger, management philosophy and corporate
culture. It said Glaxo's recent conduct of these discussions "has
inevitably strained relations between the two companies" and that
"insurmountable differences" have arisen which would undermine the
effective management of the merged group.
Analysts had generally expect a merger of Glaxo and SmithKline would
proceed smoothly, clearing regulatory scrutiny.
Under the proposed deal, Glaxo shareholders were to receive 59.5% of
the merged company, while SmithKline shareholders would receive 40.5%.
In contrast to drug megamergers in the early 1990s that were driven
by cost-cutting, this round was thought to be sparked by a desire to
exploit scientific advances. An explosion in breakthroughs has suddenly
created vast research opportunities that are overwhelming drug
companies' budgets and management expertise. New gene-sleuthing
technology, when combined with high-speed, computerized chemistry, is
producing countless tempting leads for treating illnesses ranging from
AIDS to cancer, from heart disease to depression.
A Glaxo-SmithKline merger would have created a behemoth with a
research-and-development budget of more than $3.3 billion, nearly twice
Merck's.
Gene hunting "is yielding a cornucopia the likes of which the drug
industry has never seen," said William Haseltine, chief executive of
Human Genome Sciences Inc., after the talks were revealed last month.
Genome is a leading gene-discovery company with which SmithKline has
collaborated.
The former merger partners have many new products in the pipeline.
Some of Glaxo's late-stage projects include medications for AIDS,
infections and influenza; SmithKline is testing drugs or vaccines for
Alzheimer's, diabetes and Lyme disease.
Possible areas of concern for European Union and U.S. regulators were
said to have included the strong position held by the companies in
certain cancer drugs, antiviral drugs and perhaps antibiotics.
Glaxo and SmithKline have competing drugs to fight ulcers - Glaxo's
Zantac and SmithKline's Tagamet. They also have competing herpes drugs,
Glaxo's Zovirax and SmithKline's Famvir. The companies also overlap in
the area of cancer therapy, and each has an estrogen-replacement drug
for women in its pipeline.
Ordinarily, that kind of head-to-head competition which would be lost
from a merger would raise red flags from regulators. But the patents on
Zantac, Tagamet and Zovirax have expired, and a host of rivals are
offering generic versions. With that much competition, regulators were
thought to be less likely to object to the loss of competition,
attorneys said.
At $65 billion to $70 billion, the pricetag on the merger would have
been almost twice the size of WorldCom Inc.'s planned takeover of MCI
Communications Corp.
Copyright (c) 1998 Dow Jones & Company, Inc.
All Rights Reserved.
Companies or Securities discussed in this article:
Symbol
Name
NYSE:GLX
Glaxo Wellcome Plc ADS
NYSE:SBH
Smithkline Beecham Plc Ord Shs
ISEL:GLX
ISEL:SB
c 1998 Quote.com, Inc. All Rights Reserved. |
