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Glaxo Wellcome, SmithKline Beecham Agree on Merger
To Form World's Biggest Drugmaker: Report

Associated Press
LONDON — British pharmaceutical heavyweights Glaxo Wellcome PLC and SmithKline Beecham PLC have reached agreement to merge, forming the world's largest drugmaker, The Financial Times reported in its Monday editions.

The agreement, to be announced later Monday, creates a new industry giant, to be called Glaxo SmithKline, with a market capitalization of $184 billion, the newspaper said.

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

A spokeswoman for SmithKline refused to confirm the newspaper report. No one from Glaxo returned phone calls Sunday night.

The new group would be headquartered in London, but largely run from a new operational base in the United States, possibly New Jersey, the London-based newspaper said. The group would have a 7.5 percent share of the global pharmaceutical market.

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 disclosed on Friday. Previous discussions between the two groups collapsed two years ago over differences between their top executives.

Under the plan, the companies expect cost savings of about $1.76 billion after three years, the Financial Times reported.

The group will have a worldwide work force of 105,000, the newspaper said. But over three years, about 10 percent of those jobs will go as the new company makes cuts in middle management and administration.

The merger is expected to take at least six months to complete and will be realized by an offer of Glaxo or SmithKline shares, resulting in a 58.75 to 41.25 percent split in Glaxo's favor, the Financial Times said.

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 antidepressant 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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