Wellcome surrenders to Glaxo

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The Independent Online
BY TOM STEVENSON

Deputy City Editor

Wellcome reluctantly gave up its search for a white knight to trump Glaxo's hostile £9bn offer yesterday, expressing bitterness at the way the Wellcome Trust, its largest shareholder, had tied itself into an agreement that shut off the possibility of a higher bid.

John Robb, chairman, said two potential bidders had walked away from a deal, thought to be worth an extra £500m to shareholders. They pulled out after failing to persuade the Trust to give an irrevocable undertaking to accept a higher bid on behalf of its 39.5 per cent stake.

The bidders are understood to have been Zeneca, the former ICI subsidiary, and Roche, the Swiss pharmaceuticals group. Wellcome has approached 30 potential buyers in the six weeks since Glaxo made its offer, attracting serious interest from five.

Recommending shareholders accept the Glaxo cash and shares offer, Wellcome said it had received assurances from Sir Richard Sykes, Glaxo chief executive, about the planned rationalisation and integration of the two businesses.

Despite assurances that the process would be fair to the workforces, the largest union at Wellcome and Glaxo, the MSF, is concerned about the merger.

Paul Talbot, MSF national officer, said: "Everyone agrees that this merger will lead to a major shakeout in jobs, leaving many highly skilled people facing a future on the dole."

Up to 15,000 jobs are expected to be cut worldwide, with both companies' research and development departments facing the brunt of the cuts. Both have research arms in the south -east of England and in the US.

The Independent Wellcome Shareholders' Association also expressed disappointment at Wellcome's capitulation. A spokesman said the group was concerned about the future of Aids research and Wellcome's community programme, which provides information about Aids.

The City, however, welcomed the ending of uncertainty and Glaxo's shares closed 19p higher at 667p, valuing the offer at 1,049p. Wellcome slipped 9p to 1,027p. Zeneca rose 14p to 878p as the threat of a potentially stretching acquisition fell away.

One analyst said: "It is an exceptional price, proven by the fact that other bidders were prepared to come in at a higher price even without Glaxo's assumed synergies." Others predicted a rise in Glaxo's share price to 800p.

The Wellcome camp insisted that the Trust, advised by Flemings, had given up the chance to accept a higher bid by unnecessarily signing an agreement with Glaxo that prevented it from committing to a higher bid from a third party. After taking advice, the Trust decided against going to the High Court this week to seek confidential directions on whether to breach the terms of the agreement. Glaxo advisers said that without the binding agreement no bid would have been made in the first place.

The Trust said: "Throughout this process the Trust has, consistent with its fiduciary and legal duties, remained committed to accepting the highest offer."

It is understood that some of Wellcome's institutional shareholders are annoyed that the Trust in effect denied them the proceeds of a higher offer. Medical research, which the Trust funds, could have lost out on the income from an extra £200m, sources said.

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