Glaxo offers Wellcome $14 billion

January 24, 1995|By New York Times News Service

LONDON -- Taking the steady consolidation of the health care industry to a new scale, Glaxo PLC launched an unsolicited $14 billion offer for Wellcome PLC yesterday, in a deal that would create the world's largest drugmaker.

If completed, the deal between the two British companies would be the largest in a string of mergers and acquisitions among pharmaceutical companies, hospitals and other health care providers.

It also would rank among the two or three largest deals to date in any industry, behind the $30 billion merger of R. J. Reynolds and Nabisco completed in 1989 and neck-and-neck with the $14 billion combination of Time Inc. and Warner Communications in 1990.

Together, the companies would have $12.2 billion in worldwide sales, and would dominate the treatment of ulcers, AIDS and herpes. Their combined worldwide market share would be 5.3 percent, Glaxo said, compared with 3.9 percent for the current leader, Merck & Co.

Wellcome, the world's 20th-largest drug company, has long emphasized its desire to remain independent, and said yesterday that it would study the Glaxo offer and consider possible alternatives.

But Glaxo, the world's second-largest drug company after Merck, has the upper hand, having made an offer that analysts described as being at the top end of the industry valuations. It won a commitment from Wellcome's largest shareholder, the independent charity Wellcome Trust, to sell its 39.5 percent.

Glaxo said it was offering 10.25 pounds -- about $16.20 -- for each Wellcome share in cash and Glaxo stock, which is 49 percent higher than the closing price of Wellcome's stock on Friday.

On the New York Stock Exchange, the American depositary receipts of Wellcome rose $4.375, to $15.125, while Glaxo ADR's fell $1.375, to $19.125. The drop reflected the concern among investors about the high price being offered by Glaxo and the possibility that the earnings per share of a combined Glaxo-Wellcome could fall, at least in the short run, as it absorbed the costs of the merger.

Wellcome's shares had been pushed down by a decision earlier this month by the U.S. Food and Drug Administration to not recommend approval for over-the-counter versions of Wellcome's biggest-selling drug, Zovirax, a treatment for herpes, which will lose its patent protection in two years.

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