Drug shares soar as takeover fever grips sector

Shares in pharmaceutical companies soared yesterday as the stock market responded to the planned mega-merger between Glaxo and SmithKline Beecham. The entire drugs sector was gripped by takeover fever as traders speculated on who else might feel the urge to merge.

But while analysts applauded the deal some fund managers are not so sure. Nigel Cope and Andrew Yates report.

Glaxo was the major beneficiary of the market's new "drugs high" with its shares rocketing by 20.7 per cent to 1983p The surge added pounds 12bn to the company's market value while SmithKline's shares rose by more than 8 per cent, increasing its value by pounds 3.6bn. At these levels a combined Glaxo-SmithKline would be worth pounds 117bn.

Shares in Zeneca were dragged higher in the frenzy, rising by almost 10 per cent as analysts suggested it may now be prompted to seek a deal. "Zeneca will be touted as a bid candidate though the management are likely to be against it," said Valerie Lee at Panmure Gordon. "And we would expect to see consolidation in the US market."

Analysts suggest the most likely groups to seek a deal are Merck of the US and American Home Products, which was in talks with SmithKline itself until Friday night when it was abandoned by SmithKline in favour of a Glaxo deal.

But while analysts praised the proposed merger, some institutional shareholders were more critical. One senior fund manager said: "I can't help but think that the whole thing is somewhat overcooked. Is it really conceivable that Sir Richard Sykes [Glaxo's chairman] and Jan Leschly [SmithKline's chief executive] will work so well together? It looks like a blueprint for tension at some stage."

The fund manager also questioned the scope for potential cost-cutting, given that Glaxo has only recently completed major cuts following its merger with Wellcome in 1995. "Are these companies really so inefficient that they will be able to make pounds 1bn-plus savings?"

Another institutional investor questioned the potential windfalls for the group's management, depending on how the deal is structured. If a "newco" is formed to take over both companies it could trigger share option payments on both sides. These would run into millions of pounds.

If the merger goes ahead there are likely to be huge pay increases for the Glaxo executives, who earn significantly less than their counterparts at SmithKline, which has a reputation for lavish payments.

Sir Richard Sykes was paid a total of pounds 1.1m in 1996, compared with Jan Leschly's pounds 2.1m. As Sir Richard will be executive chairman of the new group and Mr Leschly its chief executive, the Glaxo man is likely to expect equal pay. He will need at least to double his salary to take him ahead of SmithKline's Dr Jean Pierre-Garnier, who will be one of the merged group's executive directors. He earned pounds 1.96m last year.

Outlook, page 25

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project