Glaxo PLC, the world’s No. 2 drugmaker, is hoping to close in on the No. 1 spot with a $14.24 billion cash and stock offer for British rival Wellcome PLC.
The purchase would be the biggest ever in a pharmaceutical industry that has been consolidating in response to pressures brought on mostly by the rapid growth of cost-conscious managed health care plans in the United States.
It would broaden the product lines of two companies that now rely on a narrow band of drugs for the bulk of their revenues.
Glaxo’s main drugs treat ulcers, respiratory afflictions and infections. Wellcome dominates treatments for AIDS and genital herpes.
Combining the two companies would also allow for cost cutting in management, research and manufacturing that could improve profit margins. Job cuts are likely, Glaxo’s chief executive said Monday.
So far, the largest pharmaceutical merger is 1989’s $11.5 billion purchase of Squibb Corp. by Bristol-Myers Co.
If this deal is finalized, the combined company, to be called Glaxo Wellcome PLC, would have more than $12 billion in annual revenue. That would rival the U.S.’s Merck & Co. as the largest pharmaceutical company. Merck had $10.5 billion in 1993 revenue, but is expected to report this week that it took in about $15 billion for 1994.
Wellcome’s board, which learned of the unsolicited offer in an early morning phone call from Glaxo, advised shareholders to take no immediate action while management evaluates “all options for the company.”
Glaxo makes the world’s biggest selling prescription drug, the ulcer medication Zantac, which accounts for about 40 percent of its $8.5 billion in annual revenue. However, its profits have been in question because Zantac’s patent is expiring in 1997, potentially leaving it open to competition from generic drugs.
Wellcome, with about $3.5 billion in annual revenue, is the maker of AZT, the primary drug for AIDS, and Zovirax, a highly successful treatment for genital herpes. However it has been considered by analysts to be a takeover target because of its reliance on those two drugs for half its sales and the 1997 patent expiration of Zovirax.
The drugs of the combined company would also include Glaxo’s Ventolin, an asthma inhaler, the antibiotics Fortaz and Ceftin, and Imitrex, an injectable drug for severe migraine headaches. Wellcome’s other major drugs include the heart medication Lanoxin, and nonprescription medicines including the cold remedies Sudafed and Actifed.
The offer represents a premium of 49 percent over the closing price of Wellcome shares on the London Stock Exchange Friday.
Wellcome’s stock soared 42 percent to $15.25 Monday. Glaxo stock fell $1.25 to $19.25.
The offer was made after Glaxo privately struck a deal with Wellcome’s biggest shareholder - the Wellcome Trust.
Glaxo said it would pay $1,155 cash and give 47 new Glaxo shares for each 100 shares of Wellcome stock. Glaxo called this a final offer but reserved the right to raise its bid if another potential buyer emerges.
Sir Richard Sykes, Glaxo’s deputy chairman and chief executive, referred to the drug industry’s deal making during a midday news conference in London.
“We want to lead in this process, not be carried along by it,” he said.
The Glaxo offer tops a $9.7 billion deal last August in which American Home Products Corp., maker of the painkillers Advil and Anacin, acquired rival American Cyanamid Co. A year earlier, Merck paid $6.6 billion for Medco Containment Services Inc., a prescription benefits manager and mail order drug supplier.