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
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Steve Bruce and Gus Poyet clash
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths surrounding the enigmatic singer
Life and Style
ebooksA special investigation by Andy McSmith
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Christian Benteke of Aston Villa celebrates scoring the winner for Aston Villa
Bill O'Reilly attends The Hollywood Reporter 35 Most Powerful People In Media Celebration at The Four Seasons Restaurant on April 16, 2014 in New York City
media It is the second time he and the channel have clarified statements
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn