Outlook: Impasse threatened in SmithKline merger talks

Prospective mergers can have all the industrial and cost-cutting logic in the world going for them, but still they are prone to founder on some other matter or point of principle. During the great merger mania of the 1960s, one such famously fell apart on the issue of whether the chairman's office would have access to a private loo. No it would not, came the answer, and that was that.

There doesn't appear to be much danger of this specific difficulty interrupting the SmithKline Beecham/American Home Products merger talks but judging by growing signs of concern in the City, they could yet come to grief on another issue which has nothing to do with the commercial logic or otherwise of the deal.

SmithKline Beecham is these days operationally a US company; its head office is based in Philadelphia, its chief executive, Jan Leschly lives there, and most of its assets and profits are in the US. In terms of its ownership and domicile, however, SmithKline is a UK company. More than two-thirds of its shares are owned by UK investors and the company is also a constituent of the FTSE 100 index. If it merges with American Home Products, it will operationally become even more of an American company. Assuming the terms are of the share swop into a common holding company variety, the most likely course, it will also become largely a US owned company. In these circumstances it is inconceivable that the merged entity would be anything other than US domiciled and that its primary listing would be in the US too.

That in turn creates all kinds of difficulties for the company's UK shareholders. If the primary listing and domicile are in the US, then the company cannot be part of the FTSE 100 index. All indexed funds would have to sell, as would those with tight rules governing the geographical basis of asset allocation. As a result, a large swathe of UK shareholders would be deprived of the cost cutting and other industrial benefits of the merger. In other words this is a transaction which may not be in the interests of a large minority of shareholders, even though its commercial credentials might be impeccable.

There are two possible ways over this not inconsiderable hurdle. The first might be to create a dual listing structure on the model of the great Anglo-Dutch combines of Unilever, Shell and Reed Elsevier. However, there are good reasons why this has never been tried before with an Anglo American company, not least cultural. Furthermore American investors, not to mention Morgan Stanley, the moving investment banking force behind this merger, would be unlikely to tolerate a structure that would involve a division of assets and domicile in a company which operationally would be almost wholly American. A half-way house was tried with the original merger between Smith Kline and Beecham and it didn't work.

The other alternative would be for Smith Kline to mount an all cash bid for AHP funded in part by equity raised in the UK. Sadly, that too looks like being one for the dreamers. These days it is the Americans who rule the world, not the British. No doubt there is a price at which the American ego could be bought, but it is unlikely to be one that would appeal to UK investors. We may have something of an impasse in the making here.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
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

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before