Eu All Set To Review Deal

The European Commission is expected to scrutinise competition aspects of any merger deal that results from talks under way between British pharmaceutical groups Smithkline Beecham Plc and Glaxo Wellcome.

A spokesman at the European Unions Brussels-based executive said on Saturday that as far as he knew no such deal had yet been notified to the Commission, the blocs competition watchdog. But, he told Reuters, in view of the size, I think it is normal the Commission would look into it, in line with normal EU competition policy procedures.

SmithKline Beecham Plc and Glaxo Wellcome Plc said late on Friday they were in merger talks that could lead to the formation of the worlds largest pharmaceutical company.

 

Competition policy lawyer Izzet Sinan at Brussels-based law firm Morgan, Lewis & Bockius also predicted that a deal of that size would need to be examined by Brussels.

But Sinan said he did not see any risk of the Commission blocking such a merger as there would still be several large competitors left in the pharmaceuticals industry.

There are plenty of other big pharmaceutical companies around, he said. So ones inclination would be to say, it will create the biggest company but there is no way that they are going to prohibit it.

Under present rules, the EU executive automatically scrutinises mergers if the global turnover of the companies involved is at least five billion European currency units ($5.4 billion) and their EU turnover reaches 250 million ECUs for each firm.

If the Commission believes a merger harms fair competition, it usually demands changes before approving it. The Commission can even block deals altogether, but this happens only rarely.

Sinan said the Commission may set conditions on a Smithkline/Glaxo Wellcome merger if there were business areas where only these two companies were active and a merger would create a monopoly concerning a specific pharmaceutical product.

Then the Commission may impose conditions on that aspect of the business, but it is far too early to say yet, he said.

In New York, Jami Rubin, a Wall Street analyst with Schroder & Co, said there was little product overlap between the two companies, with the exception of an antiviral drug.

The Commission has earlier reviewed major deals in the pharmaceutical industry, but without demanding significant concessions for approving them.

In July, 1996, it cleared the merger of Swiss drug giants Ciba-Geigy and Sandoz after the companies agreed to grant non-exclusive licenses for a leading animal anti-parasite product. The merger created Novartis, one of the largest companies in the world drug industry.

The 1995 creation of Glaxo Wellcome itself, a leader in antiviral medicines, also needed the Commissions green light.

It had expressed concern that Glaxo, which already marketed the anti-migraine drug Imigran, would control two more similar products if it bought Wellcome.

As a result, Glaxo agreed to license out the development and European marketing of one of the two new products to a third pharmaceutical company. This was seen as a small price to pay to secure regulatory approval.