Here's what the NY Times had to say about the new merger:
January 31, 1998
Drug Makers Are Weighing Mega-Merger
By DAVID J. MORROW and LAURA M. HOLSON
SmithKline Beecham PLC announced late Friday that talks with
American Home Products on a merger that would have been the
biggest in history had ended and that it was instead pursuing a
combination with Glaxo Wellcome PLC instead -- a potentially much
bigger deal.
While huge mergers have roiled the pharmaceuticals industry in recent
years, Friday's announcement stunned industry analysts and executives. A
deal between the two London-based companies would easily be the
biggest. The companies have a combined market capitalization of $165
billion -- more than that of Exxon.
A merger of Glaxo, which makes Zantac, an antiulcer drug, and
SmithKline, which produces Tums, Panadol and Aquafresh toothpaste,
would dwarf most of its competitors. The combined company would
have $26 billion in sales, much of it going to research and development.
"This is absolutely incredible," said Mark Becker, a European
pharmaceuticals analyst with J.P. Morgan Securities Ltd. in London.
"Neither one of the companies has a problem with a product losing a
patent. This merger is totally about matching strength to strength. Glaxo is
the world's largest seller of pharmaceuticals and SmithKline Beecham has
a lot of products in the pipeline."
What was especially noteworthy about the SmithKline announcement
with Glaxo is that, even though the merger talks are far from finalized,
some of the details are already being revealed. According to SmithKline's
statement Friday, should the merger be successful, Glaxo Wellcome's
shareholders would hold 59.5 percent of the new company and
SmithKline Beecham's 40.5 percent.
The management team has also been selected. Richard Sykes, Glaxo's
chief executive, would be the executive chairman of the merged company,
while Jan Leschly, SmithKline's chief executive, would be the chief
executive. The board of the new company would be drawn from the
existing SmithKline and Glaxo boards.
"Even though the companies are clear to say they are only talking of
merging, anytime you come out with a management team and stock
evaluations, that's a sign things are serious," said Neil Sweig, a
pharmaceuticals analyst with Southeast Research Partners. "It looks like
SmithKline was talking with Glaxo and American Home at the same
time."
After a week of rumors, SmithKline confirmed that it was discussing a
merger with American Home Products on Jan. 20. Even though the stock
market reacted favorably to the announcement, the discussions appeared
to stall rapidly after that.
Much of the controversy surrounded American Home Products' legal
liabilities over its two diet drugs, Redux and Pondimin. The two drugs,
one half of the diet cocktail known as fen-phen, were removed from the
market by American Home Products last September at the suggestion of
the Food and Drug Administration.
Since then, hundreds of people who used the drugs have rushed to file
suits against American Home Products. Analysts believe that several
thousand suits could be filed against the company, which could create a
possible payout of $2 billion to $9 billion.
Despite American Home's fen-phen problems, the company was insisting
that the merger be a 50-50 split. On top of that, however, analysts said
there was a swelling problem over management succession in the merged
company.
hen the American Home talks with SmithKline were first
announced, observers of both companies believed that Leschly,
an athletic 57-year-old would run the company. John R. Stafford,
American Home's 60-year-old chairman, had undergone prostate surgery
in the fall and had led many company watchers to believe that he wanted
to retire.
Apparently, this was not the case. Stafford repeatedly pressed to be
named the chairman of the merged company, and said that he had little
interest in an early retirement, according to people who have talked to
company executives.
While American Home and SmithKline bickered over these details,
executives from Glaxo Wellcome became increasingly interested in a deal
with their British counterpart. According to a person close to the
negotiations, Glaxo executives first approached SmithKline last weekend
about the possibility of a merger.
SmithKline executives were interested so Leschly and Jean-Pierre
Garnier, SmithKline's chief operating officer, met with Sykes and Robert
Ingram, Glaxo Wellcome's executive director, in New York on Jan. 27.
This was to be the only face-to-face meeting the executives had, a person
close to the negotiations said.
SmithKline's board met on Thursday in Philadelphia and agreed the two
companies should continue discussions. Glaxo's board met Friday, and
the language of the joint release was worked out late that afternoon.
Leschly then phoned Stafford to tell him the talks had halted.
When asked about the SmithKline merger with Glaxo, an American
Home spokesman would only confirm that the company's merger
discussions had ended.
Analysts cautiously noted that even though the SmithKline talks with
Glaxo were further along than those with American Home, the deal could
take a long time to finalize. Still, most expected the stocks to react
favorably, just on the size of the new company alone. The combined
SmithKline Glaxo Wellcome will have a budget of $3 billion annually on
research and development, roughly three times the size of Pfizer. |
