2 advisers in deal may each earn $43 million

Goldman Sachs, Morgan Stanley to benefit

Investment banking

January 18, 2000|By BLOOMBERG NEWS

LONDON -- Goldman Sachs Group Inc. and Morgan Stanley Dean Witter & Co. could earn fees of about $43 million each for their role advising the merger of Glaxo Wellcome PLC and SmithKline Beecham PLC, based on comparable fees on recent transactions.

The drug companies began talking about creating the world's largest pharmaceutical company after Christmas, almost two years after merger discussions between them broke down when they could not agree on management roles.

Although Goldman Sachs was not formally hired, it began doing work for Glaxo, such as estimating the costs of merging with potential partners, shortly after the last round of talks collapsed. Lazard Freres & Co. advised Glaxo during the failed talks but was not hired this time. A Lazard spokeswoman declined to comment.

"We were better served with that global investment bank," said Glaxo Finance Director John Coombe, referring to Goldman Sachs.

The bankers involved include Goldman Sachs International President Simon Robertson, senior partner Richard Sharp, and Andrea Ponti, head of European drug companies.

Advisers from Morgan Stanley were: Bruce Fiedorek, head of financing and advisory services; Simon Robey, global mergers co-head; Robert Bradway, head of European health care mergers and acquisitions, and Executive Director Adrian Mee. Fiedorek and Robey worked for SmithKline the last time the two companies talked.

Analysts and investors expect the merger to close this time -- allowing the banks to collect advisory fees.

Management changes are occurring at both drug companies. SmithKline Chief Executive Officer Jan Leschly is retiring, Glaxo Chairman Sir Richard Sykes is ceding management control to become nonexecutive chairman, and Jean-Pierre Garnier, SmithKline's chief executive designate, will be CEO of the new company.

Advisory fees are based on last year's average. For mergers over $20 billion, banks averaged 0.12 percent of the transaction total, according to Thomson Financial Securities Data Co.

Fees shrink as the merger size grows. With the few mergers over $70 billion, the fee has averaged 0.056 percent in the past two years.

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