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Drug giants confirm talks
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January 20, 1998: 5:20 p.m. ET
No firm deal yet between SmithKline Beecham and American Home Products
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NEW YORK (CNNfn) - Pharmaceutical giants American Home Products Corp. and SmithKline Beecham Plc Tuesday confirmed they were in merger discussions. However, both companies added there are no assurances that a merger will be completed.
Rumors of a possible deal had leaked out late last week, but confirmation of the talks sent shares of the companies soaring.
In Tuesday trading, American depositary shares of SmithKline (SBH) closed up 2-9/16 to 59-9/16 after rallying 8.9 percent Monday in London trading. American Home's stock (AHP) also rose, up 13-9/16 to 94-1/4.
A merger between SmithKline and AHP would create one of the world's biggest drug companies, with combined global market share of just under 6 percent, overtaking Switzerland's Novartis AG and Britain's Glaxo Wellcome Plc, both with a little over 4 percent.
Pharmaceutical analyst Jami Rubin of Schroder & Co. speculated a deal could trigger further rounds of consolidation. (190K WAV) or (190K AIFF)
Rubin also said if a deal between AHP and SmithKline were completed, the new company could grow more than 20 percent a year -- far more than if the companies operated alone. The reason: enormous potential cost savings in such overlapping areas as cardiovascular drugs, antibiotics and vaccines. Analysts said the combination could save as much as $2.5 billion.
SmithKline Beecham was formed in 1989 from the merger of Beecham, the British drug company that grew rich on the back of Beecham's laxative pills, and struggling U.S. group SmithKline Beckman. AHP, which has a market value of around $40 billion, is also no stranger to mergers, having swallowed up American Cyanamid in 1994 for $9.6 billion.
With its subsidiaries like Whitehall and Wyeth-Ayerst Laboratories, American Home Products ranks as the nation's third-largest drug company, behind Merck & Co. (MRK) and Bristol-Myers Squibb Co. (BMY).
-- by staff and wire reports
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