Glaxo Wins Takeover Bid for Wellcome

From Associated Press

Glaxo won its battle to create the world's largest drug-making company Tuesday as rival Wellcome surrendered to a hostile takeover that values Wellcome at $15 billion.

To make the deal work, however, Glaxo must cut thousands of jobs and other costs to weather the impact of key patent expirations in 1997--expected to cost the group $1 billion or more in annual revenue.

For example, Glaxo, the No. 2 drug producer behind the United States' Merck & Co., loses its patent in 1997 on the ulcer medicine Zantac, the top prescription drug in the world.

Some analysts believe 11,500 jobs or more could be slashed out of a combined work force of 61,500. Glaxo, which employs 44,000, has refused to discuss the numbers.

Analyst Peter Laing, who follows pharmaceutical stocks for the investment bank Salomon Bros. in London, suggested that by cutting the staff to 50,000 people and making other changes, costs could fall by about $1.2 billion a year.

That would give the combined company, Glaxo Wellcome, a good chance to thrive in a rapidly evolving market that might have threatened the very existence of the separate companies.

The deal would be the biggest merger yet in the fast-changing health care industry, where manufacturers are being forced to reduce costs as large purchasers exercise more and more muscle in the market. The biggest deal so far has been the $11.5-billion purchase of Squibb Corp. by Bristol-Myers Co. in 1989.

"I don't see it as a sacrifice of Wellcome at the altar of Glaxo," Laing said. "I think there will be a serious strategic analysis."

Glaxo promised that cuts will be made fairly.

"Change is taking place in the industry anyway," company spokesman Martin Sutton said. "Jobs are being lost anyway."

Despite what many thought was a high price, analysts see logic in combining two companies that make drugs for a narrow range of illnesses, including ulcers, asthma, AIDS and genital herpes.

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