Beckman Instruments Stock Moves Up as Investors Weigh Merger Scenarios

There aren’t many of them out there--yet--but the 300 or so shareholders of Beckman Instruments must have been dancing in the streets Friday as the thinly traded stock finished the week at $22.125 a share, up an impressive $2.875, or 15%.

A total of 62,200 shares of the Fullerton-based scientific and medical diagnostic instruments company changed hands Friday.

All week, Beckman Instrument shares have been rising in lock-step on the New York Stock Exchange with those of parent company SmithKline Beckman Corp.

Nearly 2.3 million shares of SmithKline Beckman were traded Friday. The stock closed at $60.375 a share, up $4.75 for the day and $7.50, or 14.2%, for the week.

Shareholders of both companies, it seems, are benefiting from merger mania.

Beecham Group PLC, a British medical supplies firm, has talked to Philadelphia-based SmithKline Beckman about merging the two companies’ prescription drug businesses and selling off the nonconforming parts--pieces that would include Beckman Instruments.

When word of that leaked out Wednesday, along with news that Beckman Instruments had adopted a poison pill takeover defense, the stock of both companies started climbing.

And when Beecham announced Friday that it had retained Wasserstein Perella & Co, a New York mergers and acquisitions firm, SmithKline Beckman and Beckman Instruments shares really took off.

But why are Beckman Instrument’s shares soaring at the same fevered pace as its parent’s, especially since SmithKline Beckman owns 86% of Beckman Instruments and there are only about 300 other shareholders?

Opinion on the street is pretty unanimous: Beckman Instruments, acquired by SmithKline in 1982 in a $1-billion tax-free exchange of stock, is destined to strike out on its own again.

The only real questions seem to be how soon it will happen and what form the parting of the ways will take.

SmithKline Beckman started the speculation late last year when, as part of a corporate reorganization aimed at slapping some life into the anesthetized pharmaceuticals segment of the company, it said it would consider selling off part or all of several of its units, including Beckman Instruments.

The plan was inaugurated when 4.5 million shares of Beckman Instruments common stock were sold to public investors, with SmithKline Beckman retaining 24 million shares. The stock closed at $19 a share Nov. 4, 1988, its first day back on the street since 1982.

One longtime industry analyst, who asked to remain unnamed, said that if Beecham merges with SmithKline Beckman, the combined company is likely to tender for the Beckman Instruments shares now traded publicly. The intent, said the analyst, would be to give the parent 100% of Beckman Instruments so it would have a whole pie to sell, rather than one with a big slice missing.

The difficult thing is assessing just what this means to investors and potential investors.

Because Beckman Instruments stock has only been traded for the past 5 months, few analysts are up to speed on the company.

Thus, it is difficult to find anyone who is comfortable categorizing the current trading price as too much, not enough, or just right.

One industry watcher, Julian Menear of Pershing & Co.’s Chicago office, said he thinks that Beckman has been without its independence for too long to make a big splash if it is cut loose. “It won’t have the resources to compete, and it won’t have the financial wherewithal of a larger parent to fall back on. It will have a tough first few years.”

Beckman Instruments, Menear said, “has very good management that knows the business inside out, but technology cycles so fast nowadays that having been independent 6 years ago is like having been independent 6 centuries ago. The capital and equipment demands are so much greater now because the market is quicker and more sophisticated.”

But Kurt Kruger, a New York-based medical technology analyst for Hambrecht & Quist, a San Francisco investments firm, disagrees.

Beckman Instruments, he said, “is very viable as an independent. It makes great sense for it to be separate and, as I hear from competitors in the industry, like Hewlett Packard and Millipore, Beckman actually is doing quite well. Its fundamental business looks quite healthy.”

The company--which posted a profit in 1988 of $42.5 million, up 9%, on sales of $770 million, up 11% for the year--does about half its business in analytical instrumentation and half in health care diagnostic instruments.

The analytical instruments business has gone through a depression recently, Kruger said, “but Beckman’s products have gained in sales.”

Beckman Instruments as an independent also would have the advantage of size. It would tower over most players in the analytical instrument field, where only nine companies now have sales in excess of $250 million a year, Kruger said.

And its stock, he said, should be worth a lot more on its own than bundled with SmithKline Beckman’s.