Glaxo may get institutions' support for bid

GLAXO Wellcome may receive the support of a number of large institutional investors if it launches a no-premium hostile bid for SmithKline Beecham, it emerged yesterday.

But some of Glaxo's shareholders are understood to lukewarm about the prospect of the group offering a large premium for SmithKline, which could destroy some of the potential value created by the deal.

Merger talks between the two drugs giants, that would be have led to the largest corporate deal in history, broke down on Monday night.

"We would be interested in getting back some of the value that was promised to us but was taken away. But paying a premium could prove risky," said one fund manger.

News that Glaxo was contemplating a hostile bid for the group sent shares in SmithKline up 51p to 779p yesterday in early trading before they slipped back to 760p. Glaxo's shares fell 57p to 1700p on fears that it might be tempted to pay a large premium for its rival.

Analysts pointed out that Glaxo would have to overcome several obstacles to launch a no-premium hostile bid for SmithKline. Under accounting rules Glaxo may be forced to right off up to pounds 40bn of goodwill, which would depress future earnings, although some experts believe this problem is not insurmountable.

SmithKline are also likely to put up strong resistance to any such move. "They will not give up without one hell of a fight. It could get very bloody and costly," said one industry analyst. Observers believe SmithKline could even resort to seeking another pharmaceuticals partner to fend off a hostile bid.

Glaxo plans to meet institutional investors over the next few weeks, when it would have a chance to sound them out about takeover proposals. If it did launch a hostile bid it would probably look to sell SmithKline's consumer healthcare business to concentrate on developing a powerful drugs pipeline.

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