Originally created 01/18/00

Merger creates world's largest drugmaker

LONDON -- British pharmaceutical heavyweights Glaxo Wellcome PLC and SmithKline Beecham PLC reached agreement to merge into the world's largest drugmaker, the companies announced Monday.

The merger would create a company valued at $182.4 billion and with a 7.3 percent share of the global pharmaceutical market.

The company expects $1.6 billion in pretax cost savings after three years. The group said job cuts were expected, but it released no other details.

"It is inevitable that redundancies will arise as a result of bringing the two companies together," the companies said in a statement.

The planned merger still must be approved by the Federal Trade Commission and the European Union.

Under the planned deal, Glaxo shareholders would hold a 58.8 percent stake in the new group, while SmithKline would hold a 41.3 stake.

The new company would have its corporate headquarters in London. Its new operational base would be in the United States.

The planned merger demonstrates the pressure facing even the biggest names in the pharmaceutical industry to consolidate with rivals as a way to afford the rising costs of developing and selling new medicines. It is also likely to trigger a new round of takeovers and mergers throughout the industry.

Only last week, Pfizer Inc. emerged as the likely winner in the battle for U.S. drugmaker Warner-Lambert Co. Bowing to pressure from its investors, Warner-Lambert management said they would negotiate a buyout from Pfizer, backing away from a previously announced merger deal with American Home Products Corp. If that deal goes forward, the combined group would have 6.5 percent of the global market.

Talks between Glaxo and SmithKline were only formally announced on Friday. Previous discussions between the two groups collapsed two years ago over differences between their top executives.

Glaxo's strength lies in its top anti-migraine drug, Imitrex, and in treatments for asthma and viral infections including HIV.

SmithKline's top products include the antibiotic Augmentin, the anti-depressant Paxil and a new diabetes drug, Avandia. It also has a strong vaccines business.

After news emerged that the companies were in merger talks, analysts said a consolidation would make sense. The two companies have complementary drug portfolios, and a merger would let them pool their research and development funds and would give the merged company a bigger sales and marketing force.

On Friday, after announcing that talks had resumed, both companies saw their U.S. shares surge on the New York Stock Exchange. Glaxo rose $2.25 to $60.25, while SmithKline rose $3 to $69.75.

Worldwide pharmaceutical sales of the combined company would total $17.8 billion, based on 1998 annual figures. That would surpass the $15.9 billion in sales of a combined Pfizer-Warner-Lambert.


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