The newly merged company, SmithKline Beecham, is a prescription and over-the-counter drug company with more than $6.7 billion in annual revenues, second only to Merck & Co. Its headquarters will be in London with Beecham chief executive Robert Bauman retaining that title and SmithKline chief executive Henry Wendt shifting to chairman.
As part of the merger, Irvine-based Allergan Inc. and Fullerton-based Beckman Instruments Inc., which had been acquired by SmithKline several years ago, were spun off as separately traded public companies, severing all ties with the pharmaceutical giant.
SmithKline Beckman took a small step toward divestiture of its Orange County subsidiaries last November when it took 16% of Beckman Instruments public.
On Wednesday, Allergan, a maker of eye- and skin-care products, and Beckman Instruments, a medical instruments company, immediately joined the roster of Orange County’s five largest public corporations, according to Newport Securities. In 1988, Allergan had earnings of $80 million on revenue of $756 million, while Beckman Instruments had earnings of $42.5 million on revenue of $770 million.
As part of the merger agreement, all of the Beckman and Allergan stock will be issued to former SmithKline Beckman shareholders.
About 66.7 million shares of Allergan stock will begin trading today on the New York Stock Exchange. In pre-sale agreements with brokers Wednesday, the stock was selling for $24.50 a share, according to Allergan spokesperson Jamie Trevor.
Today 28.5 million shares of Beckman stock also will become tradable on the New York Stock Exchange. Wednesday’s spinoff apparently had little influence on Beckman investors. At the close of the market, the company’s stock was selling in light trading for $18.38 a share, up 25 cents.
Allergan and Beckman executives said Wednesday that although they believe that both companies fared well under SmithKline’s leadership, they expect that the renewed independence will give added incentive to their employees and management.
Industry analysts observed that the strong earnings of both companies no longer will be hidden by the overall performance of the much-larger SmithKline Beckman corporation.
Management and other employees of Allergan and Beckman are expected to take advantage of opportunities to purchase stock in the new companies by exercising stock options and participating in newly established employee stock ownership plans.
“It is an exciting time for us. A time of recommitment and rebirth,” said Gavin Herbert, Allergan’s chairman and chief executive officer.
George Kilmain, Beckman’s vice president of finance, said, “It is good for employees to identify with Beckman as an entity. They are making the products and now they can see how we are doing. You tend to lose your identify as part of a larger corporation.”
Allergan was founded in 1948 by Gavin Herbert Sr. in a shop above his Los Angeles drugstore. It was bought by SmithKline for $259 million in 1980.
Beckman Instruments was started in a Pasadena garage in 1935 by Arnold O. Beckman. It was purchased by SmithKline in 1982 for $1 billion.
SmithKline decided to divest Beckman and Allergan because their business focus was considered peripheral for a pharmaceutical house and because SmithKline and Beecham wanted to merge as equal partners, said SmithKline spokesman Alan Wachter. For the same reasons, he said, Beecham spun off a cosmetics business.
In recent weeks Beckman and Allergan executives have been on the road touting their companies to securities analysts, many of whom had lost touch with the companies when they merged into SmithKline Beckman.
Both Beckman and Allergan are considered financially strong by industry analysts, particularly Allergan because of that company’s continued rapid growth and leadership position in a burgeoning industry.
David MacCallum, managing director of Hambrecht & Quist Inc. in New York, said Allergan is “one of a handful of unique pharmaceutical companies that identified a niche and developed a dominant position within that niche. I think Allergan will continue to grow at a rate significantly faster than the rest of the pharmaceutical industry.”
John Osgood, a medical analyst for Alex Brown & Sons in Boston, said he believes that at Beckman “independence can serve as a bit of revitalization. I think it is an attitude more than anything else.”
He noted that one of Beckman’s major markets, medical research, currently is lagging because of cutbacks in government spending. But he said he expects the company’s stock to perform well “in the long term.”
THE COMPANIES AT A GLANCE
BECKMAN INSTRUMENTS ALLERGAN Headquarters Fullerton Irvine 1988 revenue $770 million $756 million 1989 first-quarter revenue $199 million $178.6 million 1989 second-quarter revenue $200 million n/a 1988 earnings $42.5 million $80 million 1989 first-quarter earnings $10.7 million $17.3 million 1989 second-quarter earnings $11.4 million n/a Primary Products Analytical and Eye-care and industrial instruments, skin-care control systems, products electronic components Year of acquisition 1982 1980 by SmithKline Employees 7,300 worldwide 6,000 worldwide 2,300 in Fullerton and Brea 2,200 in Irvine Wednesday’s closing 18.35 up .25 n/a stock price Chief executive Louis T. Rosso Gavin Herbert Jr.