Positive reaction to Galen takeover of Warner Chilcott

Eighteen months ago, it looked as if the sky had fallen in on Galen Holdings when its £1.5 billion sterling (€2.6 billion) merger with the Dutch pharmaceuticals group, Ferring, collapsed - a victim of the collapse in share prices in the second half of 1998.

Galen chairman Dr Allen McClay and chief executive Mr John King did not hide their disappointment at the time of the collapse of the Ferring deal. But speaking to The Irish Times yesterday, Mr King - who will own 13 per cent of the enlarged company when the Warner Chilcott deal is completed - indicated that, just possibly, the end of the Ferring merger may have been a blessing in disguise.

"We were very disappointed at the time, but after the deal collapsed we decided to review our strategy. That review led us to a view that we should be looking towards the American market," he said. The decision to look across the Atlantic culminated yesterday in the agreed takeover of Warner Chilcott, the 1997 spin-off from Elan that is registered in Dublin but has the vast bulk of its operations in the US. Galen shares might have fallen yesterday by 50p in London (86.54 cents) after an early rise, but analysts said this did not reflect a negative reaction to the deal, but rather a reaction to the dilution of shareholdings that would result from the issue of more than 30 million new shares to Warner Chilcott shareholders.

"Overall, it will go down pretty well," said Ms Eva Haas, analyst with brokers Greig Middleton. Analyst Ms Joan Garahy of Galen's Irish brokers, Goodbody, agreed. "It's a good deal and an excellent fit with Galen."

The new group will have a combined sales force of 260 in the United States and around 65 in Britain and Ireland. The larger network will also give Galen strength to attract marketing deals with other biotech firms.

In terms of sales, both companies are quite similar with Galen having sales of £67 million sterling and Warner Chilcott had sales of £76.1 million.

The one element of the deal that has surprised some analysts is the form of management shake-up that will follow the takeover, with Galen chief executive Mr King becoming executive chairman and Warner Chilcott chief executive Mr Roger Boissenault becoming chief executive of the combined entity.

Sources close to Galen, however, have said the Northern Ireland group will exert control, reflecting Galen's domination of the combined group, Mr King's position as executive chairman and Mr Geoffrey Elliott's position as finance director of the combined entity.

For Dr McClay, the founder and chairman of Galen, the takeover will see him move to the largely ceremonial position of president and give up executive responsibilities.

Dr McClay, a bachelor in his late 60s, gave Galen employees £7 million worth of shares and Queen's University another £17 million worth when the company floated three years ago.

His comment at the time was: "There's no pockets in a shroud." His stake in the combined Galen-Warner Chilcott is worth in excess of £230 million sterling, making him one of Northern Ireland's wealthiest men.