MPs criticise failure of drug merger

Drugs link: SmithKline and Glaxo are ticked off, but a committee report says they should merge

TOP management at SmithKline Beecham and Glaxo Wellcome were seriously criticised by MPs in a report published yesterday for the way they abandoned a planned mega-merger in February.

In addition, the House of Commons Science and Technology Select Committee has signalled its support for any future tie-up between the two drug company giants.

The stock market has been awash with rumours that merger talks are again on the agenda. The companies have either denied the moves or refused to comment on them.

The committee, chaired by Dr Alan Williams, initially decided to examine the planned merger as it feared that the UK's research and development base would be damaged. Ironically, it concluded that a merger would have been a good thing, creating a national champion that would actually help secure domestic jobs and expertise.

But the committee's report is critical of the manner in which the talks broke down. It says: "The judgement of senior executives must be called into question. They readily embarked on an adventure with national assets, and then equally readily abandoned the enterprise less than a month later without a clear cause consistent with claimed advantages."

It believes that neither Glaxo's executive chairman, Sir Richard Sykes, nor SmithKline's chief executive, Jan Leschly, has been properly called to account for the merger failure.

The committee said the two men gave contradictory reasons why the talks broke down, but it remained unconvinced that management styles and philosophies were so different as to be irreconcilable.

Glaxo hit out at the report, saying its conclusions were "surprising" and "disappointing", but SmithKline was broadly supportive. It said: "We endorse the position taken by the committee in stating that it was better for both companies to remain separate than for the merger to have proceeded without producing the desired returns." It repeated its view that Glaxo broke the fundamental principle that it was a merger of equals.

While speculation has mounted that talks might soon begin again, Glaxo sources say the company would only proceed if Mr Leschly is removed.

Mr Leschly told a seminar organised by London's City University Business School that he was "appalled" at speculation that he would resign over the failed merger under pressure from shareholders.

"I have no intention of resigning and I am appalled at these rumours. I have tried very hard to maximise shareholder value. Why should I consider resigning?"

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