Glaxo and SmithKline directors could make millions from a mega- merger

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The Independent Online
Directors of Glaxo Wellcome and SmithKline Beecham stand to make millions from share options, depending on how the proposed mega-merger between the two companies is structured. Nigel Cope and Andrew Yates report.

Executive directors of the pharmaceutical giants could net almost pounds 35m between them from the exercise of share options if the pounds 117bn merger is effected by a "newco" being formed to take over both groups. Options could also be triggered if one company ends up controlling more than 50 per cent of the enlarged group, signalling an effective takeover. SmithKline options will be triggered as both boards have agreed Glaxo shareholders would control 59.5 per cent of the new group.

Glaxo directors are also likely to receive massive pay increases to bring their rewards into line with their more lavishly remunerated counterparts at SmithKline.

It is SmithKline's directors that hold the largest tranche of options. They are sitting on combined share option profits of pounds 30m, according to figures published in the group's annual report. Glaxo directors stand to gain around pounds 4m.

Jan Leschly, SmithKline's chief executive, would be the biggest beneficiary. At the closing share price yesterday he held paper profits of almost pounds 17m including profits from US securities. Jean Pierre Garnier, chief operating officer, could make pounds 6.35m while Hugh Collum, the finance director could make pounds 3.3m.

Glaxo's executive chairman, Sir Richard Sykes, is sitting on options worth pounds 478,000. Dr James Niedel, research and development director, could net pounds 2.6m while Robert Ingram, another executive director, holds options worth pounds 1.4m.

The companies would not comment on possible payouts. Glaxo conceded it was accepted practice for options to be exercised if the deal was structured as a "newco" takeover.

If the merger goes ahead there are likely to be huge pay increases for the Glaxo executives who earn significantly less than their SmithKline counterparts.

Sir Richard Sykes was paid a total of pounds 1.1m in 1996 compared with Jan Leschly's pounds 2.1m. They will be executive chairman and chief executive respectively of the new group. Sir Richard would 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.

The scale of the potential pay increases and options payments was criticised by some institutional investors yesterday. "This wouldn't be a reason they are doing the merger, would it?" one asked.

The deal could also lead to a pounds 400m fees bonanza for the company's advisers, including Lazards and Morgan Stanley.

Details of the pay bonanza emerged as pharmaceuticals shares soared. 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.

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