US threat to Glaxo deal

American Federal Trade Commission raises questions over anti-trust law
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The Independent Online
GLAXO'S £9.2bn hostile takeover bid for the rival pharmaceuticals group Wellcome has been thrown into confusion by the surprise decision of the US competition watchdog, the Federal Trade Commission, to ask both companies for further information.

If the FTC decides that the bid violates the US Hart-Scott-Rodino anti- trust law, Glaxo may be forced to withdraw it. Any other bid by a leading pharmaceuticals manufacturer may be similarly outlawed.

A statement issued late on Friday night said: "Glaxo announces that it has today received a request for additional information from the FTC, in connection with the filing it made in accordance with the HSR Act on 26 January 1995, relating to its Final Offer for Wellcome. Such requests are not uncommon in transactions of this size and type and Glaxo will work actively to satisfy the FTC's request as soon as possible.

"It is not possible at present to determine whether the receipt of the information request will have any impact on the timetable of the Final Offer. Based upon publicly available information, Glaxo believes that the Final Offer does not violate the US anti-trust laws."

A spokesman for Glaxo added that the company had considered whether there might be any such violation before it launched its bid last month, and had been advised that it did not.

A Wellcome source said that the FTC request it received related to Panorex, a new adjuvant treatment for colorectal cancer, and 311C, an anti-migraine drug.

But Wellcome was careful to distance itself from any accusation of trying to sabotage the Glaxo bid.

John Robb, Wellcome's chairman and chief executive, said: "Wellcome has not sought in any way to frustrate the Glaxo offer by pushing an anti- trust defence. We continue to pursue our strategy of securing a better offer for all shareholders."

A further statement is expected from Wellcome tomorrow.

The key clause in the Glaxo offer makes it conditional on "the expiry or early termination of all applicable waiting periods under the US HSR Act and all filings having been made and all waiting periods having expired or been terminated".

While it is far more common for the FTC to seek information than it is for it to actually block a bid, the agency's late return to the fray raises doubts about the bid only 10 days before it is due to expire.

And, as the two drug areas in question are the subject of considerable competition among leading pharmaceuticals groups, if the FTC does object to Glaxo taking over Wellcome it may make similar objections to any other bid for Wellcome.

While that would have the effect of guaranteeing Wellcome's independence, it would also have a devastating effect on its share price.

The first final closing date of Glaxo's offer is 8 March, but it is understood that this could be extended if the FTC needed more time to make up its mind.

The combined Glaxo-Wellcome, while ranking as the world's largest pharmaceuticals group, would have an overall market share of only 6 per cent.

But the nature of the FTC's inquiries make it plain that the US agency is concerned with anti-trust consequences of the merger in specific drug areas where the two companies have competing products.

An industry observer pointed out that the anti-migraine overlap should not pose an insuperable problem, simply because there are so many other companies developing products to overcome that particular ailment.

A Glaxo-Wellcome merger might have a more dramatic impact on the range of treatments available for colorectal cancer, as there are fewer manufacturers competing in that part of the market. Roche, Bristol-Myers and Pfizer are the main competitors, all of which are believed to have had discussions with Wellcome.

But the emergence of the FTC as a factor in the battle for control of Wellcome, which both sides have suppressed until now, will come as a stern reminder to investors that even in the pharmaceuticals sector their calculations can be upset by unexpected foreign regulatory intervention.

That danger could also deter the potential rival suitors that Mr Robb has been eager to encourage in the hope that one or more of them will produce higher offers than Glaxo's.

With Glaxo shares down 7p to 629p on Friday, the bid is worth £10.31. That is 20p higher than Wellcome's market price, which was down 6p on the day.

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