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SmithKline, Glaxo nix deal
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February 23, 1998: 8:34 p.m. ET
Drug giants cite 'insurmountable differences' for calling off $70B deal
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NEW YORK (CNNfn) - Less than a month after announcing talks had begun, SmithKline Beecham Plc and Glaxo Wellcome Plc Monday canceled their proposed $70 billion merger, citing insurmountable differences.
The blockbuster deal would have created the world's largest pharmaceutical company with annual sales of more than $25 billion and the biggest research and development operation in the business.
It would also have helped Glaxo weather the loss of its U.S. patent for its popular anti-ulcer drug Zantac and its anti-herpes medicine Zovirax.
The move marked the second time SmithKline (SBH) has walked away from the bargaining table in the last month.
On Jan. 30, SmithKline terminated merger talks with American Home Products (AHP) and announced it was negotiating with Glaxo.
However, in a statement issued after the markets had closed Monday, SmithKline said Glaxo refused to proceed with the merger on the previously agreed upon terms.
"The Board of SmithKline Beecham is aware of the significance of this decision, particularly in light of the Jan. 30 public announcement and the substantial increase in the market capitalization of both SB and Glaxo," the company said in a statement. "After careful consideration, however, the board has unanimously decided that it is unable to recommend the proposed merger to its shareholders and discussions have therefore been terminated. (Look here to see a chart of SmithKline's stock over the last three months and Glaxo's stock over the last three months)
"The board of SB no longer believes that the merged group would be able to operate in such a way as to produce superior performance for shareholders."
The news sent American depository receipts of Glaxo (GLX) down to 60 from their close of 62 points in after-hours trading.
SmithKline spokesman Lynne Smith said the company had no plans to restart talks with American Home Products Corp. or anyone else.
While SmithKline did not provide specific reasons for the fallout, the company said numerous differences developed during the negotiations.
"The discussions since Feb. 20 have revealed a number of differences between the companies, including differences in the approach to the possible merger, management philosophy and corporate culture," SmithKline added.
"Most importantly, Glaxo's recent conduct of these discussions has inevitably strained relations between the two companies. The board of SB has unanimously reached the view that insurmountable differences have arisen which would undermine the effective management of the merged group and impair its ability to deliver the shareholder value creation fundamental to the merger."
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.
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