Merger Would Create Drug Industry Giant : Pharmaceuticals: American Home Products makes a surprise $8.5-billion bid for rival American Cyanamid.

In a merger that would create one of the world’s largest pharmaceutical firms, American Home Products Corp., maker of Anacin and Advil pain relievers and other health products, made a surprise $8.5-billion bid Tuesday for competitor American Cyanamid Co.

The $95-a-share offer--about 50% above American Cyanamid’s stock price on Tuesday--is the richest in a recent wave of pharmaceutical company mergers. Faced with government and corporate efforts to cut health care costs, many large drug makers are seeking to lower operating expenses and boost marketing clout by combining with competitors.

“Everybody is looking for critical mass in the pharmaceutical business,” said Jim McCamant, editor of the Medical Technology Stock Letter.

American Home submitted the offer as Cyanamid was reportedly talking about spinning off its drug and medical products business--which generate about $3 billion in annual sales--to British pharmaceuticals giant SmithKline Beecham. In return, SmithKline would give Cyanamid its vaccine and animal health products, according to the Wall Street Journal.

Industry analysts said it was not clear whether the American Home offer would scare off SmithKline or other potential bidders. Officials at American Home, Cyanamid and SmithKline could not be reached for comment.

American Home Products, which also sells Dristan and Robitussin cold and cough medicines, said its offer is based on the removal of any Cyanamid anti-takeover provisions and the absence of any significant asset sales. The deal must also be approved by shareholders and pass any federal antitrust reviews.

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In a letter Tuesday to Cyanamid Chairman Albert J. Costello, Stafford said his company has been watching Cyanamid closely and is “extremely impressed” with its management.

“The combination of our companies would result in an enterprise with the strength and breadth required to prosper in times of uncertainty for the health care industry,” Stafford wrote.

Cyanamid did not immediately respond to the offer.

On the New York Stock Exchange Tuesday, American Home shares fell 75 cents to close at $56.75; Cyanamid surged $30 to $93. Word of the deal helped give a lift to other drug stocks as investors made bets on the next likely takeover target.

An American Home-Cyanamid deal would eclipse the $6.6 billion that drug maker Merck & Co. paid last year for Medco Containment Services, a large prescription benefits manager and mail-order drug company.

A merger between American Home and Cyanamid would create a giant with more than $6 billion in drug and medical products sales. The deal also would help each company overcome unique shortfalls.

Although American Home’s over-the-counter products are well known, the firm badly needs to broaden and update its prescription drug lines, analysts said. The Madison, N.J.-based company’s birth control products, which include the Norplant contraceptive, are faced with slow growth, and its best-selling prescription drug--Premarin, an estrogen replacement--will soon face competition from low-cost generics.

Cyanamid, which makes the Centrum brand of multivitamins, has struggled to reorganize its money-losing health care business. However, the company has a large and profitable generic drug division that American Home lacks, as well as a 53.5% stake in Immunex, a Seattle-based biotechnology company that has several drugs for cancer treatment under development.

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A merged company will be able to cut costs by combining sales and research staffs, for example, as well as offer an expanded product line to customers. A large stable of products is critical if both companies are to win contracts from cost-conscious managed-care health providers, analysts said.

“The deal probably buys a fair amount of time for American Home Products to reap the benefits of synergies and consolidation while they wait patiently for long-term new products to bear fruit,” said Steven B. Gerber, a pharmaceutical industry analyst at Oppenheimer & Co.

American Home and Cyanamid also generate substantial revenues outside of the health care industry. American Home’s food lines include Chef Boyardee and Jiffy Pop, and Cyanamid also sells agricultural insecticides and animal feed.

The Companies at a Glance American Home Products Corp.

* Headquarters: Madison, N.J.

* Chief executive: John R. Stafford

* Employees: 51,399

* Major products: Over-the-counter remedies such as Advil, Robitussin, Anacin, Dimetapp, Chapstick, Dristan, Primatene Mist. Also owns Chef Boyardee and Polaner, a maker of jellies and jams. Prescription drugs include Premarin, an estrogen replacement.

* 1993 revenue: $8.3 billion

* 1993 profit: $1.5 billion

* Earnings per share: $4.73

* Tuesday stock price: $56.75, down 75 cents.

American Cyanamid Co.

* Headquarters: Wayne, N.J.

* Chief executive: Albert J. Costello

* Employees: 26,550

* Major products: Over-the-counter remedies such as Centrum and Fibercon. Prescription drugs include polio and tetanus vaccines, ProStep, a nicotine- replacement arm patch, Verelan and Maxzide, for hypertension.

* 1993 revenue: $4.3 billion

* 1993 loss: $1.1 billion*

* Losses per share: $1.82*

* Tuesday stock price: $93.00, up $30.00

* Includes restructuring and other accounting charges.

Sources: Steven B. Gerber, pharmaceutical analyst, Oppenheimer & Co.; Bloomberg Business News; Standard & Poor’s Corp. Researched by ADAM S. BAUMAN / Los Angeles Times