Drug Makers Consider Merging Deal Would Rank As Biggest Corporate Merger Ever

SmithKline Beecham PLC and rival drug maker American Home Products Corp. said Tuesday they are considering the biggest corporate merger ever, sending stocks of other pharmaceutical companies higher as Wall Street poised for another round of merger mania.

Investors speculated that if two of the world’s biggest drug makers combine, the deal would set off a repeat of the drug industry’s 1996 frenzy among drug makers.

“There will be another wave of consolidation,” said Hemant K. Shah, an independent drug industry analyst in Warren, N.J. “If this goes through, some other companies will have to think. How do you compete?”

In separate statements, American Home and SmithKline Beecham said there are no guarantees the talks will lead to a merger. The drug makers declined further comment until the discussions are concluded.

It remains unclear how the deal would be structured, but analysts say the combined company would likely be a merger of equals based somewhere in the drug corridor that stretches from New York to Philadelphia.

At Tuesday’s stock price, American Home is worth about $58 billion. If SmithKline, valued at more than $63 billion, were to buy American Home, the deal would eclipse the most expensive merger announced to date, the planned buyout of MCI Communications Corp. by WorldCom Inc. for stock valued at about $37 billion.

The combined company would have combined sales of about $24 billion, giving it the most health care revenues of any company. Five other companies, including Nestle, have more overall sales, but much of their revenue comes from outside the health care business.

“On top of that they will become the leading consumer brand company in over-the counter products,” Goldman Sachs analyst Prem Lachman said.

A merger would also unite two companies divided by history and an ocean. Madison, N.J.-based American Home - whose vast product line includes Robitussin cough medicines, Advil pain relievers and the nation’s most-prescribed drug, the estrogen compound Premarin - is 82-years old.

Its drug-making division, Wyeth-Ayerst Laboratories, goes back to 1860.

London-based SmithKline - maker of the antidepressant Paxil and over-the-counter products such as Aquafresh toothpaste, Geritol vitamins, the Nicoderm anti-smoking patch and Tum’s antacids - was created in the 1989 merger of SmithKline Beckman Corp. and Britain’s Beecham Group PLC.

Its roots go back to 1830.