Here's what FT had to say:
Hostile bid?: Investors believe further action
likely from Glaxo
FRIDAY FEBRUARY 27 1998
By Daniel Green
Could Glaxo Wellcome launch a hostile bid for SmithKline Beecham? If
Glaxo went ahead, it would have to offer about œ50bn ($83.5bn), making it
the biggest takeover bid in history. But three days after their proposed friendly
merger collapsed, some analysts are arguing that Glaxo must have considered
this option.
The resilience of both companies' shares since the merger was called off
suggests investors believe further corporate action is likely.
SmithKline's shares closed yesterday at 748p, almost 100p below their peak
this month but above the level in January when it was in merger talks with US
company American Home Products. That deal was abandoned when Glaxo
approached SmithKline with its merger offer.
Glaxo shares have now recouped almost half the loss incurred on Tuesday
when the deal was abandoned.
Glaxo is not commenting but analysts cite several arguments why it could be
considering a hostile bid.
Sir Richard Sykes, Glaxo chairman, has been here before. His
successful hostile bid for Wellcome was launched after a friendly
overture was rebuffed.
SmithKline would be likely to find it difficult, as Wellcome did, to
attract a white knight. A rival bidder would be bidding against the
world's biggest pharmaceuticals group.
Jan Leschly, SmithKline chief executive, has little room for manoeuvre.
Having agreed to marry two partners within four weeks, he can hardly
stress the merits of independence.
Glaxo could recoup perhaps œ5bn by selling SmithKline's consumer
brands such as Lucozade, Panadol and Nicorette, its clinical
laboratories and DPS, the drugs distributor.
SmithKline has admitted it needs cash to exploit fully its genetics
research before others catch up. One alternative is to raise money from
the markets, but shareholders might be less sympathetic to a rights issue
- which normally depresses a share price - than a bid.
One UK-based analyst said yesterday: "Ordinarily the numbers would be too
big, but there are a lot of SmithKline shareholders who have seen the honey
near 900p a share."
Analysts at Lehman Brothers suggest an all-share offer at 900p could begin to
improve Glaxo's earnings per share within three years, or sooner with a cash
component.
A hostile bid would also address Glaxo's difficulty with the merger of equals
previously planned: it is the bigger company and wanted that reflected in
management control of the combined business.
The main obstacle for Glaxo would be how to justify writing off œ45bn in
goodwill, according to Lehman estimates.
The personal rivalries that scuppered the first deal would still exist but with
Glaxo in charge arguments could be resolved more ruthlessly. |
