Here's a Reuters update:
Friday February 27, 7:53 am Eastern Time
Hostile Glaxo bid for SB unlikely-analysts
By Tony Roddam
LONDON, Feb 27 (Reuters) - Pharmaceutical analysts, chastened by the shock news
this week of the collapse of a planned
merger between Glaxo Wellcome Plc and SmithKline Beecham Plc (quote from
Yahoo! UK & Ireland: SB.L), said on Friday a
hostile bid by Glaxo could never be ruled out but agreed the odds were extremely
remote.
British newspapers reported on Friday that Glaxo was mulling a hostile bid for
SmithKline after their planned marriage fell to
pieces amid bitter boardroom acrimony. Glaxo declined comment. SmithKline, whose
shares rose nearly seven percent on the
reports, was unavailable for comment early on Friday.
Analysts, who said it was more likely the companies would now seek out other
corporate relationships than drag each other
kicking and screaming to the altar, warned the costs of a hostile bid would be
prohibitive and weigh on earnings for years to
come.
In addition, they said the reported clash of boardroom personalities would make a
mockery of attempts to take advantage of
lower-cost merger accounting practise -- which would demand a true melding of
management.
On a darker note, experts pointed to market rumours suggesting Glaxo's
hastily-drawn-up merger proposal could have been a
spoiling tactic to prevent SmithKline getting together with American Home Products
Corp (AHP - news) and leaving Glaxo
trailing in the corporate league.
''I don't think a conventional hostile bid is a runner, it's so Machiavellian to get it all
together. SmithKline would fight tooth and
nail. It would become so expensive,'' Peter Cartwright, analyst at Williams de Broe
said.
A second analyst, who asked not to be named, echoed Cartwright's comments.
''I haven't deleted my merger spreadsheet yet...but you would have to create enormous
amounts of goodwill. If you create all
that goodwill and write it off over 20 years, then you'll depress earnings by a couple of
billion a year,'' the analyst said.
Under British merger accounting rules, no goodwill is created and there is no need to
write if off, in contrast to a straightforward
takeover deal.
''It's difficult to see in companies of this size, under British accounting, how you will
make the deals look good unless you do a
true merger,'' the analyst said, adding that a key point of merger accounting rules was
that both parties had equal roles.
A third analyst said Glaxo had little to lose from the merger collapse whereas
SmithKline, which has now seen two deals slip
away in as many months, was in a more urgent position. The company is seen as
overdependent on two major drugs which are
facing patent expiry problems.
''Glaxo has effectively scuppered the AHP option for SmithKline. Glaxo has no
downside risk on this. If it succeeds, they
become the biggest, If not, they're still up there with the leaders,'' the analyst said.
Cartwright at Williams de Broe said the companies' shared the same shareholder base,
making an informal poll of shareholders
by Glaxo difficult prior to any bid moves.
''The idea of a hostile bid is a pretty long shot. Before it's really on, someone would
have to poll the shareholders and see if
they would wear it. Once that happens, it would start to leak and the other party would
leap up and down,'' he said.
He noted also that an approach could backfire and shareholders insist on SmithKline's
management taking over. |
