drug giants Glaxo Wellcome and SmithKline Beecham today announced their agreement to form
the world's biggest pharmaceutical group with market capitalisation exceeding $180
billion. SmithKline Beecham's Jean-Pierre Garnier will be the chief executive of the
emerging entity, called Glaxo SmithKline, and Glaxo's Sir Richard Sykes will hold the
position of non-executive chairman. Also see .
Glaxo SmithKline will have annual sales of nearly $28 billion, and a
market share of 7.5 per cent. Though the group will have headquarters in London,
operations will be largely conducted from a US base, either SmithKline's headquarters in
Philadelphia or a new location in New Jersey.
The merger is expected to result in annual cost savings of $1.8
billion, to be realised in three years. The group has a global workforce of 105,000, and
it is likely that around 10,000 jobs may be lost after the merger, which will take about
six months to complete.
The all-stock merger deal will be reportedly realised through an offer
of Glaxo shares or SmithKline Beecham shares, which will result in an approximate 58.75 :
41.25 split in Glaxo's favour. This is a marginally better deal for SmithKline compared to
the 1998 offer of Glaxo, when the merger talks had failed. To find out what made the
merger successful this time, .
The two companies have also decided to put SmithKline's nutirional
business on the block. The nutritional business is estimated around $3.3 billion and
includes popular brands such as Ribena, Horlicks, and Lucozade. However, Glaxo SmithKline
will retain SmithKline's consumer health division, which has popular brands such as
Nicorette (an aid to stop smoking). This is supposed to complement Zyban, Glaxo's
prescription drug in the same category.
The new company will hold a dominant position in at least five
therapeutic categories. These are respiratory conditions (asthma), anti-virals (HIV, and
hepatitis), diseases of the nervous system (depression, and migraine), antibiotics, and
vaccines. It is also likely to emerge as a major player in diabetes- and bowel-related
Significantly, the two companies will together create an exceptionally
strong research and development base with an annual R&D spend of $4 billion. This
figure will be next only to the combination of Pfizer and Warner Lambert, if they merge.
Both companies have significant exposure to emerging technologies.
SmithKline Beecham, the first to predict the impact of the genomic revolution in drug
discovery, is expected to contribute significantly in this area, while Glaxo, besides its
genomic work, will provide other cutting edge technologies such as combinatorial
chemistry, and DNA micro-chips. This will result in fast-track development of drugs from
the laboratory to the marketplace.
On the marketing front, the new company will have a whopping
7,500-strong sales force in the dominant US market and will be supported by a mammoth
marketing budget. Moreover, Glaxo SmithKline stands to gain by leveraging on the branding
skills developed by SmithKlines consumer health division.
Jean-Pierre Garnier expressed confidence on the merger and said that
the combination of R&D excellence with marketing strength and financial power will
give the group an edge in the fast-changing healthcare environment.
The deal could trigger another round of mergers, analysts predict, as
mounting pressures on global drug companies are compelling them to join forces. Monsanto
recently announced a merger with Pharmacia and Upjohn, while Pfizer is keen to acquire
Morgan Stanley is reportedly advising
SmithKline Beecham, and Goldman Sachs is working for Glaxo.
also see : Financial
results: Glaxo India
results: SmithKline Beecham Pharma