SmithKline details sweeping changes: Sells two U.S. businesses: To cut workforce by more than a quarter over four years
02/10/1999
National Post
National
Page C11
(c) Copyright 1999 Financial Post from National Post (formerly The Financial Post Company). All rights reserved.
Anglo-U.S. drug group SmithKline Beecham PLC outlined plans yesterday to focus on prescription pharmaceuticals and consumer health care, with a surprise shakeup of its manufacturing units and the sale of two underperforming U.S. health-care businesses for $2- billion (US).
The group said the changes would cut its workforce by more than a quarter over the next four years and predicted earnings per share growth would grow sharply as it concentrates on high margin businesses, rising 15% or more in 2000 and 2001.
SmithKline also published 1998 results, which showed pre-tax profit up 6% before exceptional items at (ps)1.71-billion ($4.16-billion Cdn) on sales up 4% at (ps)8.08-billion. The figures were at the bottom end of expectations.
Jan Leschley, chief executive, denied its actions were a way of clearing the decks for SmithKline to take part in the tide of consolidation engulfing Europe's drug industry.
"This has nothing to do with the previous discussions we have had on mergers [with Glaxo Wellcome PLC and American Home Products]. We think we'll be an independent company now, a stronger company, and I think the accelerated growth forecasts we have made for 2000-2001 reflect that," he said.
"We are not talking to anybody and we don't plan to talk to anybody," he said, after two sets of merger talks broke down last year.
Despite the denials, SmithKline shares, which have been supported in recent days by a renewal of merger speculation, were up 4.1%, or 33 pence, at 831.5p.
SmithKline ended days of speculation that it was preparing to sell Clinical Laboratories, which carries out more than 110 million swab and tissue tests a year, and Diversified Pharmaceutical Services, which manages drug benefit plans for more than 20 million U.S. employees.
Clinical Laboratories, which has been involved in litigation over alleged charging irregularities, was sold to Quest Diagnostics Inc. for just more than $1-billion (US) in cash, plus a 29.5% stake in Quest worth about $245-million (US).
DPS was sold to rival Express Scripts Inc. for $700-million (US), a fraction of the $2.3-billion (US) Mr. Leschley paid for it in 1994 amid a rush for drug benefit managers that never paid off. The group said it had a one-off net loss of (ps)446-million on the sale.
The proceeds will be used to shrink SmithKline's debt to 15% of equity from 52% at the end of 1998. The restructuring, which will cost (ps)750-million over four years, is aimed at generating cost savings of (ps)200-million a year to be invested in developing and marketing new drugs.
"This means we are clearly focusing on pharmaceuticals and consumers," said Mr. Leschley.
The changes involve a cut in the group's workforce by more than 15,000 by 2002, taking it to less than 43,000. Some 3,000 jobs are to go as part of shakeup of manufacturing and product sourcing, including closure and sale of existing plants, with the rest accounted for by DPS and Clinical Laboratories.
I was announced 2/10 and closed at 4/1.
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