SmithKline told to find partner

SmithKline Beecham faces an uphill struggle to convince its shareholders that it should remain independent in the wake of the collapse of merger talks with fellow drugs giant Glaxo Wellcome.

A number of fund managers yesterday called on the group to seek other merger partners to recoup the value lost from the termination of the Glaxo deal.

Meanwhile, Glaxo Wellcome is to continue to lobby its shareholders to support a no-premium bid for SmithKline, despite the fact that institutions are divided on the merits of such a deal, it emerged yesterday.

Several large institutional shareholders are willing to support such a hostile bid, but others believe the potential obstacle of writing off pounds 45bn of goodwill which could result from a takeover is too much to overcome.

Glaxo has ruled out the idea of offering a large premium for SmithKline after an outcry from some of its largest shareholders which have indicated they would resist such a move. They are against such a bid as it will destroy much of the extra value that could result from a merger.

Glaxo's advisers are understood to be confident they can overcome the goodwill problem by structuring the deal to avoid liabilities.

Another idea suggested by investors would be to produce separate accounts, one stating the "clean" underlying earnings figures and another including the effect of goodwill write-offs.

"We want our pounds 15bn of value back and we will consider any way to get it," said one shareholder in both SmithKline and Glaxo. Both companies face a testing time over the coming weeks in their attempts to justify the breakdown in talks. It seems clear that the future of Jan Leschly, chief executive of SmithKline, and Sir Richard Sykes, chairman of Glaxo, will be called into doubt if they cannot give dispel the feeling among many institutions that the collapse of the merger had more to do with a clash of egos than management culture.

"If they cannot give us a good reason why this deal broke down we could call on the non-executives to assert their authority and maybe we could still get a merger," said one shareholder. However, other institutions believe all hopes for a deal are dead.