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SKB, Glaxo at deal's door
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December 12, 2000: 7:24 a.m. ET
FTC panel advised to approve deal with no new conditions; shares rise
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LONDON (CNNfn) - The $70 billion merger of U.K. drugmakers Glaxo Wellcome PLC and SmithKline Beecham PLC on Tuesday edged closer to getting U.S. regulatory clearance, which could come in time for the deal to be completed by year-end.
The staff of the U.S. Federal Trade Commission has recommended that the regulator's decision-making panel approve the merger, calming concern that overlap in the companies' anti-smoking products would arouse the watchdog's opposition. SmithKline and Glaxo warned that the recommendation didn't yet guarantee clearance for the deal.
The two firms said they do not expect to be forced to divest more products than  they have already pledged. In August, SmithKline agreed that if the merger goes through, it will sell the rights to Kytril, a treatment for the nausea than can follow chemotherapy, to Switzerland's Roche Holding AG of for $1.2 billion, and sell the antivirals Famvir and Vectavir/Denavir to another Swiss rival, Novartis AG, for $1.6 billion.
The merger, unveiled as long ago as January, will create the world's second-largest drug maker by sales after U.S.-based Merck & Co. (MRK: Research, Estimates), but its completion has been twice delayed.
Most recently, the two firms planned to wrap up the deal by Sept. 25, but the FTC launched an extended review to look into the competition implications of an overlap in the companies' smoking-cessation products. SmithKline markets consumer products Nicorette gum and Nicoderm patches, while Glaxo markets prescription pill Zyban.
"We don't anticipate any divestments in the smoking-cessation area," Philip Thomson, a spokesman for Glaxo, told CNNfn.com. The European Union approved the merger in May, leaving the U.S. antitrust issue as the final hurdle to the deal.
Shares of Glaxo Wellcome (GLXO) rose 2.6 percent, to 1,883 pence Tuesday morning in London, while SmithKline Beecham (SB-) rose 1.8 percent to 857.5 pence.
Not a moment too soon
Anxious investors said upbeat signs about the merger were overdue.
"It's good news. If there hadn't been a statement before the year end, people would have been getting quite twitchy about the whole thing after all the earlier delays," Liz Thom of Edinburgh Fund Managers told Reuters in an interview. "I'm glad it's done -- but I wish it had been done two years ago."
Added Robin Gilbert of WestLB Panmure: "it's a bit like the American presidential election – except that this one has been even longer-lasting. The regulators put everything through the wringer ... but there was pressure from the companies to get the thing done by the end of the year."
Many top drug companies have been joining forces, driven in part by a need to leverage their research and development activities and reinforce pipelines of coming products. Also, patent expiry on top-selling drugs can take a big and sudden bite out of revenues – and diversifying the product portfolio through mergers can help to stabilize those revenue flows.
The merger will mean holders of SmithKline Beecham stock get 0.4552 of a share in the new GlaxoSmithKline for each of their existing shares. That values the new shares being created to carry out the transaction at £48.4 billion ($70.1 billion) at current prices. Glaxo shares will be converted one-for-one into shares of the new company.
GlaxoSmithKline stock is set to start trading on the London Stock Exchange on Dec. 27, with the company's American depositary receipts making their debut on the New York Stock Exchange the same day. 
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