The Pharmaceutical Journal Vol 264 No 7080 p125
January 22, 2000 Business

Glaxo Smithkline to be formed in £114bn "merger of equals"

Glaxo Wellcome Plc and Smith-kline Beecham Plc announced a £114bn "merger of equals" between the two companies on January 17. The merger comes almost two years since a previous attempt to bring them together broke down after disagreements between senior managers. The merger is expected to be completed by the summer. The new company is to be called Glaxo Smithkline (GSK). It will be based in the United Kingdom but have its operational headquarters in the United States. The merger will create the world's largest pharmaceutical company with annual sales of over £15bn and a research and development budget of £2.4bn. Speaking at a press conference in London on January 17, Sir Richard Sykes (executive chairman, Glaxo Wellcome, and non-executive chairman designate, GSK) said that both he and Mr Jan Leschly, chief executive of Smithkline Beecham, shared a vision of creating a world-class pharmaceutical company through the merger. "The time is right and the market is right for what we are doing," he said.

MEET THE PRESS: (left to right) Jan Leschly, Sir Richard Sykes, Jean-Pierre Garnier and John Coombe answer questions after the press conference in London on January 17

Sir Richard added that by forming a company with a 7.3 per cent share of the global pharmaceuticals market "we are really separating ourselves from the pack." Other major pharmaceutical companies had market shares around 4 to 4.5 per cent and even a merged Pfizer Warner-Lambert would only reach 6.7 per cent (see panel).
He said that the new company would be UK based, since that was where over 80 per cent of its shareholders were, but would have its operational base in the United States, the world's largest pharmaceutical market. The new company would have about 5 per cent of its sales in the UK compared to almost 50 per cent in the US. The new operations head office was expected to be in the New York area.
Dr Jean-Pierre Garnier (chief operating officer, Smithkline Beecham, and chief executive designate, GSK) said: "This is a merger of strong with strong, in contrast to some other mergers in this industry."
He said that the merger would produce five key competitive advantages for the new company:

• Enhanced R&D productivity "Money and scale are important, but you also need quality." The two companies have 13 compounds and 10 vaccines currently in phase III development. Both companies were leaders in genomics and bioinformatics.
• Superior marketing power Over 40,000 employees in sales and marketing, including 8,000 representatives in the US, making the company the marketing partner of choice.
• Superior consumer marketing skills "These will be much more important than ever before." The market was being changed by direct-to-consumer advertising and e-marketing via the internet. Many of the company's products would be switched to over-the-counter status in the future.
• Operational excellence Efficiency savings of over £750m would be achieved over three years, on top of savings of £570m already achieved. Savings of £250m would be made by streamlining research and development. This money would be reinvested.
• A talented management team Both sides had previous experience of integrating companies after mergers.

As well as Sir Richard Sykes and Dr Garnier, the senior management team of Glaxo Smithkline will consist of Mr John Coombe as chief financial officer, Mr Robert Ingram as chief operating officer and president of pharmaceutical operations, Dr James Niedel as chief science and technology officer and Dr Tadataka Yamada as chairman of research and development. Glaxo Wellcome will appoint four non-executive directors to the board and Smithkline Beecham five.
In response to questions about job cuts, Dr Garnier said that it was too early in the process to give any exact figures. More work needed to be done on a country-by-country basis. Press reports have suggested that as many as 15,000 jobs could be lost from the combined workforce of Smithkline Beecham's 47,000 employees and Glaxo Wellcome's 60,000.
Sir Richard Sykes dismissed speculation that Smithkline Beecham's consumer products division, which includes brands such as Lucozade, Horlicks and Aquafresh toothpaste, would be sold off. "They are good businesses and we have no intention of doing anything but supporting them."

Cool reaction

The stock market gave a cool reaction to the news of the proposed merger between Glaxo Wellcome Plc and Smithkline Beecham Plc with Glaxo's share price closing down 86p at 1732p and SB's down 58.5p at 788.5p on January 17.
The deal was opposed by the Manufacturing, Science and Finance union, MSF, which has a large number of members among the workforces at the two companies. Mr Roger Lyons (general secretary, MSF) said: "The merger would seriously damage the jewel in Britain's industrial crown - the pharmaceutical sector."

Comment, p117