Recriminations as drugs merger collapses

The biggest merger in corporate history, which would have joined together SmithKline Beecham and Glaxo Wellcome, has foundered and SKB is laying the blame firmly at Glaxo's door.

In a strongly-worded statement, SKBsaid that it no longer believed that 'the merged group would be able to operate in such a way as to produce superior performance for its shareholders.' Although principle terms for the merger had been agreed, the talks stumbled when the companies attempted to allocate key management roles. The problem appears to have been who would take the position of third in command behind Richard Sykes of Glaxo, who would have been executive chairman, and SKB's Jan Leschly, as chief executive. SKB wanted its chief operating officer, Jean-Pierre Garnier, in the position; Glaxo wanted chief executive, Bob Ingram.

The discussions, says SKB, 'revealed a number of differences between the two companies, including differences in the approaches to the possible merger, management philosophy and corporate culture. Most importantly, Glaxo Wellcome's recent conduct of these discussions has strained relations between the two companies. The board of SKB has unanimously reached the view that insurmountable differences have arisen.'

The merger would have created the world's largest pharmaceutical firm and the second largest company of any type behind General Motors. As it would have controlled less than 10 per cent of the total world drugs market, it almost certainly would not have fallen foul of monopolies regulators. However, worries over potential job losses have caused unions to greet the collapse of the merger with relief.

The talks between SKB and Glaxo followed the calling-off of a proposed merger between SKB and American Home Products (see PE February, p5). The switch of suitors to Glaxo caused share values to rocket as analysts enthused about the prospects of the merger. In the first few hours after the scrapping of the talks, Glaxo shares fell by 13.8 per cent, and SKB's by 7.6 per cent.