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Saturday, January 31, 1998 Published at 05:52 GMT


Drug companies in merger talks
image: [ A merger would create a pharmaceutical behemoth ]
A merger would create a pharmaceutical behemoth

Britain's two leading drug companies have announced that they are in talks which they say could lead to their forming the world's largest pharmaceutical group, with some 16.2bn ($26.6bn) in combined annual revenues.

SmithKline Beecham and Glaxo Wellcome waited until after the US stock market closed on Friday to make the surprise announcement.

The news came just minutes after SmithKline said it had ended similar talks, announced only 10 days earlier, with American Home Products Corp, a leading US drug and consumer products company.

In a press statement, the companies said they were considering a deal in which Glaxo Wellcome shareholders would own 59.5% of the equity of the combined company and SmithKline shareholders would own the remaining 40.5%.

Both companies declined to comment further on the talks.

Consolidations predicted

Analysts were quick to predict that a merger of the scale being discussed could touch off a wave of consolidations in the pharmaceutical industry.

A securities analyst with HKS & Company, Hemant Shah, said the merger talks, which were announced in a statement issued from SmithKline's US headquarters in Philadelphia, signalled the beginning of a two or three year wave of major consolidations.

"The combined company would be totally untouchable," he said.

Similarly, a Wall Street analyst Jami Rubin said the deal, if completed, would create a company with significant shareholder value.

The market capitalisation of the combined group would amount to roughly $91bn ($150bn).

Ms Rubin said there was little product overlap between the two companies, with the exception of an antiviral drug.

"It looks like this could be a very powerful company with significant room for cost savings," she said.

Who gets what

In a statement regarding the proposed merger, the two companies said they planned to name the present Glaxo Wellcome Chairman, Sir Richard Sykes, as the combined group's executive chairman.

Jan Leschly, who currently serves as SmithKline's chief executive, was named as the potential chief executive and chairman of the group's executive management committee.

SmithKline Beecham, who are the second largest pharmaceutical and health products company in Britain, was formed from the merger of the United Kingdom's Beecham and the United States' SmithKline Beckman in 1989.

Its best known products include Tagamet, an ulcer treatment; Nicorette gum, a smoking inhibitor; Contact, a cold and flu medicine; Tums antacid and Aquafresh toothpaste.

Glaxo Wellcome, a leader in antiviral medicines, including Retrovir, a leading AIDS treatment and Zovirax, a treatment for genital herpes and cold sores, is perhaps best known for its ulcer drug Zantac.

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