Savings, R & D Power Drives Merger

A merged Glaxo Wellcome Plc and SmithKline Beecham Plc would create an unbeatable powerhouse in research and development, as well as yielding potential cost savings of up to £1.5 billion pounds a year, analysts said on Monday. News of the merger took the financial markets by surprise, but was widely praised as bold and imaginative, and a far better deal for SmithKline than its putative alliance with American Home Products Corp. AHP could be justified and rationalised but this does look even better, said Greig Middleton analyst Tim Franklin. Merrill Lynch analyst Nigel Barnes added: We were lukewarm on SmithKline and AHP, but we have returned to a strong buy recommendation -- it makes significantly more sense for SmithKline Beecham. The strength of the groups existing research and development base, with a current annual spend of $2.8 billion, is seen as a major attraction of the merger, with SmithKline Beechams strengths in genomics and genetics complementing Glaxo Wellcomes powerful combinatorial chemistry and high throughput screening skills. There are great synergies there, said Barnes. There is a very powerful research tool there that will drive the new company for the next five to ten years, which is very significant. They are both leading edge companies in R&D, Franklin said. Synergy in R&D matters now. Once you could have argued that the economies of scale were not there, but with the new technologies that is no longer the case.