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Biotech / Medical : PFE (Pfizer) How high will it go? -- Ignore unavailable to you. Want to Upgrade?

To: margaret foley who wrote (554)	2/27/1998 9:09:00 AM
From: Nick	Read Replies (1) \| Respond to of 9523

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.