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SmithKline courts Glaxo
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January 30, 1998: 9:04 a.m. ET
In swift move, pharmaceutical giant breaks off merger talks with AHP
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NEW YORK (CNNfn) - In an abrupt about-face, SmithKline Beecham called off merger talks with American Home Products and entered instead into negotiations with Glaxo Wellcome PLC.
A merger between the two London-based giants would create the world's largest pharmaceutical group, with combined sales of more than $25 billion - about 8 percent of the global market -- and likely spark an industry-wide consolidation.
The terse announcement Friday by British-based SmithKline also appears to definitively quell speculation of a deal with American Home Products Corp. (AHP).
In a news release Friday issued about the same time SmithKline announced the break-off of its talks with AHP, Glaxo said its directors had initiated "detailed discussions" with SmithKline's board "with a view to merging the two companies."
Neither company would provide specific financial terms of the proposed deal, but the companies said Glaxo would hold 59.5 percent of the combined company while 40.5 percent would be held by SmithKline.
The directors of the merged company would be drawn from the current boards of SmithKline and Glaxo.
Analysts said a deal between the two giants likely would spawn a series of similar deals as companies seek to achieve greater cost savings in the face of tougher competition.
"The combined company can eliminate 25 percent of duplicated cost," said Hemant Shah, an analyst with HKS & Co.
Shah said he believes American Home Products would have to find another merger partner to be successful.
"The pharmaceutical industry is an industry driven by new products, by value-added products coming out of research and development," said John Reeve, analyst at Paribas. "And Glaxo Wellcome and SmithKline will have the industry's leading commitment to R & D. They will have a commitment across a range of therapeutic areas." [152Kb WAV] [152Kb AIFF]
Glaxo develops and manufactures a wide range of gastro-intestinal and respiratory medicines, among other products.
SmithKline, one of the world's leading drug makers with $11 billion in sales in 1997, manufactures brand-name over-the-counter medicines including the popular Geritol vitamin supplements, Contac cold and flu remedy and Tums antacid.
News of the proposed deal came out after New York stock markets had closed, but Wall Street analysts estimate that if the deal takes place, it could be worth over $70 billion, the biggest since Sandoz and Ciba-Geigy became Novartis in 1996.
SmithKline American Depositary Receipts (SBH) closed down 3/4 Friday at 63-1/8 in trading on the New York Stock Exchange, while Glaxo's ADRs (GDX) fell 3-1/6 to 53-13/16. 
-- by staff and wire reports
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