Glaxo plc made a bid of 8.9 billion, or about $14.2 billion, in cashand stock for the purchase of Wellcome plc. The deal between thetwo London-based companies would be the largest ever in theindustry and would position Glaxo as the world's No. 1pharmaceutical company in terms of market share.
Glaxo said trustees of The Wellcome Trust, who hold 39.5 percent ofWellcome's stock, already have approved the move.
The offer is for 722 in cash and 47 new Glaxo shares for every 100Wellcome shares. It is a premium of about 49 percent to Wellcome's688 pence share price on Friday. Glaxo is proposing to call themerged company Glaxo Wellcome plc.
The proposed deal still must clear regulatory hurdles and approvalsof shareholders.
Sir Richard Sykes, Glaxo's deputy chairman and CEO, announcedthe unsolicited offer early Monday at a news conference in London.
"Wellcome shareholders are being offered full value as well as theopportunity to participate in a world-leading pharmaceutical group,at the forefront of research and development and product innovation,with a sound financial position, strong cash flow, extensivegeographical coverage, a management team with great breadth ofexperience and significant potential for growth," Sykes said.
"The precise timing of provisioning for integration costs cannot bepredicted today," he said. "Leaving them aside, we expect theacquisition of Wellcome to enhance earnings per share as theenlarged group benefits from improved sales performance andoperational efficiencies."
Alex Zisson, an analyst with Hambrecht & Quist Inc., in SanFrancisco, said Glaxo's move primarily was financially motivated,but also offered some strategic benefit.
"I always thought Wellcome was a very good takeover candidatebecause the fundamentals were terrible," he told BioWorld, citing thediscontinuance of four of its six lead pipeline products."
The lead product in Glaxo's pipeline is 3TC, a nucleoside analogueinvented by BioChem Pharma Inc. Trial results released inNovember showed 3TC, in combination with Wellcome's AZT,worked better than AZT alone on surrogate HIV markers. LastMarch, Glaxo and Wellcome signed a letter of intent givingWellcome an option to 3TC rights, but Glaxo took back the offer atthe same time it released the positive European trial results.
Data from a Phase II/III North American trial that will include thecombination therapy as well as 3TC by itself are expected to bereported Feb. 1 at a conference in Washington. Wellcome, whichalready has the anti-herpes drug Zovirax, got approval for its AZT in1987.
"Wellcome has a tremendous amount of experience in antivirals,both regulatory and marketing," Zisson said. "Glaxo hasn't set upthat infrastructure."
Glaxo also will benefit by getting better access to the over-the-counter (OTC) market, Zisson said. Wellcome and Warner-LambertCo. launched a global joint venture in 1993 to develop and markethealth-care products in OTC formulations. Under the alliance, bothcompanies are to contribute all current and future products to theventure.
Glaxo, with about 44,000 employees, has about 4 percent of theworldwide market share, tied with or just behind Merck & Co.Wellcome, with about 17,500 employees, has about 1.4 percent ofthe market, making it No. 20 worldwide. But about half ofWellcome's $3.5 billion in sales come from AZT and Zovirax.
Zisson said the message Wellcome may be sending similarly sizedpharmaceutical companies is that they cannot remain independent.He said those companies around No. 20 in market share might makegood merger and acquisition targets, realizing that they must getbigger to compete.
Glaxo officials said staff cutbacks would be expected in areas ofduplication, that antitrust issues should not be a concern, and that itsoffer was final and would not be increased or revised unless acompetitor makes a bid for Wellcome.
The acquisition would be larger than the $9.7 billion deal reachedlast August in which American Home Products Corp. boughtAmerican Cyanamid Co. Two years ago Merck paid $6.6 billion forMedco Containment Services Inc.
Glaxo and Wellcome both trade on the New York Stock Exchange inthe U.S. Shares of Wellcome (WEL) were up $4.38, or 41 percentMonday, closing at $15.13 in trading of 9.1 million shares. Glaxo'sAmerican depository receipts (GLX) were down $1.38 to close at$19.13.n
-- Jim Shrine
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