Glaxo Wellcome and SmithKline Beecham's announcement, in February, of their intention to join forces was met with an air of inevitability: the companies had been there before. Talks in 1998 broke down reportedly because of disagreements between top executives.

On the face of it, the reasons for this merger and for Glaxo's takeover of Wellcome in 1995 seem very different. Glaxo enjoyed significant growth during the 1980s, thanks to its anti-ulcer drug Zantac, which, at its peak, represented almost half the company's sales. But the expiry of Zantac's patent was looming. Glaxo's answer was to acquire UK-based Wellcome plc, a company one-third its size, with a similarly strong R&D tradition but with less of a commercial edge because of its charitable origins: it was almost 40 per cent owned by the Wellcome Trust.

By contrast, Glaxo Wellcome faces no major patent expiries over the next few years. The current merger “is fundamentally about R&D and really harnessing and having the [scale and] resources available to take advantage of all the new technologies,” says Martin Sutton, head of Glaxo Wellcome's corporate communications in London. The company could have gone along without merging, “but it provided the opportunity to create what we think is going to be a terrific R&D powerhouse in the industry” ( table 1).

Table 1
Full size table

Billed as a merger of equals (although Glaxo Wellcome and SmithKline Beecham shareholders will hold 58.75 per cent and 41.25 per cent, respectively, of share capital), Glaxo SmithKline will have a combined market capitalization of $189 billion, pharmaceutical sales of $20.9 billion (based on 1998 pro forma information) and a current annual R&D budget of about $4 billion.

The merger is expected to provide annual savings of $1.7 billion after three years, of which a quarter will be re-invested in R&D. Job losses are inevitable, the companies say. However, unlike the Glaxo Wellcome merger, which closed Wellcome's site in Beckenham, the companies do not anticipate the closure of any major R&D sites. When the merger is complete, the company will move its operational headquarters from Britain to the United States, although London will remain as Glaxo SmithKline's corporate HQ. Based on combined 1998 sales data, Glaxo SmithKline would have derived about 45 per cent of its revenues from the United States and 33 per cent from Europe (of which the United Kingdom represents about 6 per cent).

The merger, contingent upon regulatory and shareholder approval, is expected to be completed by summer.