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Glaxo-SmithKline marriage solemnised - Views on News from Equitymaster
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  • Feb 23, 2001

    Glaxo-SmithKline marriage solemnised

    Glaxo India Ltd. has finalised the merger ratio with Smithkline Beecham Pharmaceuticals (India) Limited. One share of Glaxo will be allotted for every two shares of SmithKline Pharma. Internationally one share of Glaxo has been allotted for every 2.2 shares of SmithKline.

    The combined entity would have a turnover exceeding Rs 12.5 bn and a net profit of Rs 1 bn. It would have a sizeable presence in both the prescription and the over the counter market. The post merger equity would be Rs 746 m, which implies an earnings per share of Rs 13.5. Glaxo currently quotes at a price of Rs 445, while SmithKline quotes a price of Rs 220.

    The changes in the management structures in both the companies over the past few months have been indicators of an amalgamation sooner than later. First came the appointment of Mr. Thiyagrajan, who headed Glaxo’s Asia Pacific operations, as CEO Glaxo India. Next came the replacements of Mr. Bandopadhaya, VP Information Technology and Mr. Anil Mathai, VP Exports by SmithKline Pharma officials.

    There is also the question of what happens to sister concerns of these two companies viz. Burroughs Wellcome and SmithKline Consumer. There is also another entity, SmithKline Beecham Asia, a 100% subsidiary of the SmithKline. (Glaxo, does not have a presence in India via a 100% subsidiary.) This however, is likely to serve as the 100% arm of the merged entity.

    Burroughs was not merged into Glaxo in India because of the fact, that wages for the workers in Burroughs were higher than those in Glaxo. While the management was willing to make a one-time payment, the workers were adamant. This prompted the management to keep the company separate, though the marketing operations of Burroughs were integrated with Glaxo.

    SmithKline Consumer owns the ‘Horlicks’ brand and is the market leader in the malted food segment. It recently took over ‘Maltova’ and ‘Viva’ too. However, internationally, SmithKline is more of a pharma company with the major operations of ‘Horlicks’ concentrated in the UK, apart from a sizeable presence in India. Glaxo has already sold its foods portfolio (comprising ‘Farex’ and ‘Glucon D’) worldwide. Even in India the food division was sold to Heinz.

    The current merger however provides significant chances of cost saving for the company. The corporate office of SmithKline Pharma based in Bangalore is reportedly on the block. There have also been press reports that two divisions of Glaxo – the veterinary division Agrivet Farm Care and Qualigens Fine Chemicals are on the block. The management however, has denied these reports.



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