THE SMITHKLINE BEECHAM DEAL : Gaining Freedom : Orange County Units Ready to Be Independent Again

When Allergan Inc. and Beckman Instruments were both acquired by SmithKline Corp. several years ago, they hoped to benefit from the pharmaceutical giant’s financial muscle. And both Orange County companies wound up prospering under SmithKline’s control.

Even so, executives at Allergan and Beckman appear to be delighted that they will be on their own again as a result of a proposed spinoff of the two companies.

“I think everybody here is looking forward to our new independence,” Allergan Senior Vice President Norris Battin said.

“It’s an opportunity,” he said, that will free his company to make quick marketing moves and avoid bureaucratic tie-ups.

Both Allergan and Beckman had inauspicious beginnings. Beckman Instruments was started in a Pasadena garage in 1935 by chemical engineer Arnold O. Beckman. Allergan was founded in 1948 by Gavin Herbert Sr. in a shop above his Los Angeles drugstore.

The companies remained independent until recent years. Allergan, an Irvine maker of eye- and skin-care products, was bought by SmithKline for $259 million in 1980, and Beckman, a Fullerton-based medical instruments company, was bought in 1982 for $1 billion.

With help from the company now known as SmithKline Beckman, Allergan--whose annual revenues have expanded sevenfold since being acquired--could buy its way into the business of making contact lenses in 1987 by buying International Hydron for $155 million. Before that, the company made care products for contact lenses, not lenses.

“We might not have been able to do that without them,” said David Bruns, president of Allergan’s international operations, referring to the acquisition. “I don’t know whether we would have been able to make some of the moves we have without them.”

Similarly, SmithKline’s large cash reserves helped Beckman when cuts in Medicare reimbursements hurt Beckman’s business by forcing hospitals to cut back on purchases. And SmithKline helped Beckman obtain a $235-million line of credit last year.

But Arnold Beckman has voiced his frustration and disappointment with SmithKline’s management. In an interview earlier this year, Beckman complained that SmithKline did not provide all of the resources he had expected to help the company expand and diversify.

He said he looked forward to the day that Beckman and SmithKline would go their separate ways.

“I hate to see Beckman Instruments’ welfare be dependent upon SmithKline,” the 88-year-old Beckman said.

Beckman built his business on the strength of his first commercial invention: a pH meter originally created to measure the sourness of lemon juice but ultimately found to have myriad laboratory uses.

Beckman has not played an active role in the managing the company since the 1982 merger, and he stepped down from the SmithKline board in April, 1986. But Allergan Chairman Gavin Herbert Jr., 56, son of the founder, has remained with his firm.

Allergan, which started by making eyedrops for children, now makes hundreds of products at manufacturing facilities in nine countries; 40% of its 1988 sales of $756 billion came from international sales. The company had revenue of $100 million in 1980, the year it was bought by SmithKline.

Herbert, a colorful executive who lives on an estate in San Clemente that was once the home of former President Richard M. Nixon and known as the Western White House, has become instrumental in Beckman’s operations as well as Allergan’s. Herbert, a longtime friend of Arnold Beckman, sits on Beckman’s board of directors and for a time last year supervised Beckman’s operations.

Analysts estimate that Allergan earned $80 million last year, accounting for nearly 35% of SmithKline’s 1988 earnings of $230 million. Beckman, which spun off 16% of its stock in November, earned $42.5 million last year. As independent companies, both would rank in the top 10 in revenues among the county’s publicly traded firms.

Philadelphia-based SmithKline said Wednesday that it would spin off Allergan and Beckman to its shareholders as part of its agreement to merge with Britain’s Beecham PLC because the Orange County firms do not fit into the merged company’s focus on pharmaceutical products.

SmithKline said its shareholders will be given one share of newly created Allergan stock for every two SmithKline shares they now own, and they will get one share of Beckman stock for every 5.5 of their SmithKline shares.

As independent firms, analysts estimate that Allergan could have a market value of nearly $2 billion, and Beckman could be worth $750 million.

“SmithKline raves about Allergan every chance it gets,” said Edward Froelich, an analyst at the brokerage firm of Pershing & Co. in New York.

SMITHKLINE BECKMAN 1988 REVENUE BREAKDOWN Total: $4.75 billion Allergan Inc.: $756 million Beckman Instruments: $770 Million Other operations: $3.22 billion THE COMPANIES SMITHKLINE LINE BECKMAN IS SPINNING OFF

BECKMAN INSTRUMENTS ALLERGAN INC. Headquarters Fullerton Irvine 1988 revenue $770 million $756 million 1988 earnings $42.5 million $80 million* Primary products analytical and industrial eye-care and instruments, control systems, skin care products electronic components Employees 7,300 6,000 Wednesday’s closing $21.50, off 75 cents Not traded stock price Chief executive Louis T. Rosso Gavin Herbert Jr.

* analysts’ estimate