Wellcome hopes to find white knight

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Wellcome's defence against the hostile takeover bid from Glaxo will get under way this week with a spirited attempt to persuade shareholders that the £9bn offer undervalues the company.

The announcement of Wellcome's 1994 results is expected to be brought forward to this week. Analysts' estimates of pre-tax profits range around £720m. John Robb, Wellcome's chairman and chief executive, thinks its performance will persuade a "white knight" to top Glaxo's 1,012p-a-share offer.

Wellcome has accepted that it will lose its independence but says Glaxo's terms undervalue it. Its defence is likely to compare the offer unfavourably with other recent deals in the pharmaceuticals industry. Glaxo has offered to pay a 49 per cent premiumto Wellcome's prior share price. This compares with premiums of 60-84 per cent in other recent international pharmaceuticals takeovers. Other yardsticks also show the Glaxo offer in an unfavourable light by comparison with other bids.

Wellcome is also likely to point out that Glaxo reckons there will be savings of £600m from merging the two businesses, and argues that its own shareholders deserve to be paid for some of these benefits. The announcement last week that Valtrex, its follow-up to the anti-herpes drug Zovirax, is to go on sale in the UK and Ireland from today, six months ahead of schedule, is another argument in favour of holding out for a higher offer.

Wellcome will show internal information not yet made available to Glaxo to potential rescuers. A source close to Mr Robb said: "These will show more value in the business than the market has been aware of." The market, which valued Wellcome shares at 998p on Friday, will remain unconvinced until the information is published more widely, however.

Under takeover rules, Wellcome will have 21 days after Glaxo issues its detailed offer document to line up an alternative bidder. Although the offer document is unlikely to be published this week, many analysts are sceptical about Wellcome's chances of finding a significantly better deal in time.

There is also some concern that any alternative bidder would be a foreign company. The names in the running are Roche of Switzerland, America's Johnson & Johnson, Merck and Bristol-Myers Squibb, and Hoechst of Germany - all with some strategic reasons for looking at Wellcome, and enough money to take it over. Takeover from overseas is considered more likely to endanger Wellcome's research jobs.

The argument that takeover by Glaxo would necessarily damage pharmaceuticals research has already been challenged by independent observers. There are areas of overlap between the two companies in research and development, which is likely to lead to some job cuts. However, the money the Wellcome Trust makes from the deal will be used to fund external research. Professor John Pattison, Dean of the medical school at University College, London, said the Wellcome Trust's funding of medical research would exceed grants made by the Medical Research Council.

The Wellcome Trust's assessment of the chance of getting a higher price for its shares will be crucial. Trustees, who will go to the High Court this week to seek permission to sell the shares, have a fiduciary duty to obtain the best price. An extra £1 would bring another £400m.