SmithKline Beecham considers merger

March 1, 1998

Pharmaceutical Representative

SmithKline Beecham acknowledged that it has been holding merger discussions with American Home Products and Glaxo Wellcome.

SmithKline Beecham acknowledged that it has been holding merger discussions with American Home Products and Glaxo Wellcome.

The London-based company broke the news Jan. 20 after rumors about discussions between SmithKline Beecham and Madison, NJ-based American Home Products began to affect its share price; American Home Products, the parent company of Wyeth-Ayerst, confirmed the report later that day.

It appeared to be a lucrative move for both companies. Together, they had posted combined sales of $24 billion in 1997, according to reports in The Wall Street Journal.

Speculation surrounding the merger raised SmithKline Beecham's stock to $621⁄2 per share and boosted American Home Products' stock to $929⁄16 per share on the New York Stock Exchange.

But on Jan. 30, less than two weeks after the announcement, SmithKline Beecham abruptly announced that discussions between the two companies had been terminated. The prospect of a merger with surprise contender Glaxo Wellcome, also based in London, was more to SmithKline's liking, the company revealed. Glaxo Wellcome is the leader in worldwide pharmaceutical sales, while America Home Products is sixth, according to reports from data research firm IMS America, Plymouth Meeting, PA.

As a result, American Home Products stock price dropped down to $8915⁄16 per share while Glaxo Wellcome's climbed nearly 10 points to $623⁄4 per share. SmithKline Beecham's stock price climbed five more points to $685⁄8 per share.

At press time, the Glaxo Wellcome-SmithKline Beecham discussions had made impressive progress. The companies agreed that, following a merger, Glaxo Wellcome shareholders would hold 59.5% and SmithKline Beecham shareholders would hold 40.5% of the issued ordinary share capital of the combined group.

They also came to terms over management issues. Glaxo Wellcome's CEO, Sir Richard Sykes, would be executive chairman and SmithKline Beecham's CEO, Jan Leschly, would be chief executive and chairman of the executive management committee. The other executive directors, drawn from both companies, would be John Coombe, Dr. Jean-Pierre Garnier and Robert Ingram.

If Glaxo Wellcome and SmithKline Beecham were to join forces, the resulting combined company would leapfrog Bristol-Myers Squibb to become number one in prescription sales in the United States. It would be twice as large as Merck & Co. and could post annual global sales of more than $25 billion.

The merger would also create the largest research and development organization in the world. By many accounts, a joint desire to streamline research and development resources is a major factor driving the merger.

According to IMS America, Glaxo Wellcome ranks a close second behind Bristol-Myers Squibb in terms of prescription drug sales in the United States. Bristol-Myers Squibb accounted for $5.66 billion of the total $93.2 billion for the 12-month period that ended November 1997 while Glaxo Wellcome earned $5.63 billion. American Home Products Corp., fifth in U.S. sales, was responsible for $5.36 billion, and SmithKline Beecham, ranked eighth, claimed more than $4.02 billion during the same time period.

SmithKline Beecham's sales leaders are Paxil, an antidepressant, and Augmentin, an antibiotic. The company manufactures products in 40 therapeutic classes, of which psychotherapeutics, anti-infectives and anti-arthritics are strongest.

Glaxo Wellcome's sales leaders include Zantac, a leading ulcer medicine; Imigran, an anti-migraine product; Serevent, a respiratory therapy; and Zyban, a nicotine treatment. The company also recently launched Raxar, its first oral medication for the treatment of diabetes.

Both companies declined to comment further until discussions are complete. PR

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