Medical merger a shot in the arm for major firms

The speed at which Glaxo Wellcome plc and SmithKline Beecham plc are agreeing key points in their merger talks has boosted confidence in the deal, which would create the world's biggest drugs company.

The new company would have a combined market value topping £100 billion and knock the US company, Merck and Co Inc, into number two position in the world. However, it could lead to 10,000 job losses.

The boards of both British companies are in "detailed discussion" on a possible merger, it was announced over the weekend, shortly after SmithKline Beecham ended merger talks with American Home Products Corp in New York.

Although the Glaxo chairman, Sir Richard Sykes, and the SmithKline chief executive, Mr Jan Leschly, were believed to be taking a rest from intense negotiations yesterday, there appeared to be greater confidence the merger would go ahead than there had been over SmithKline's aborted talks with American Home Products.

Those negotiations, which SmithKline summarily abandoned on Friday night after months of work, were thought to have become bogged down in valuation problems and worries over AHP's exposure to lawsuits linked to slimming drug Redux.

There were also suggestions that SmithKline's British shareholders were hostile to the idea of the group becoming all-American.

A joint Glaxo/SmithKline Beecham said: "The proposed merger would create the world's largest pharmaceutical group, based in Britain, and represents a compelling strategic opportunity for both companies to enhance their industry position and to realise a meaningful increase in shareholder value.

"A major and significant benefit of the proposed merger would be the formation of the largest research and development organisation in the global health care industry."

The merged company would control 7.5 per cent of the world pharmaceutical market, according to independent analyst Mr Hemant K. Shah from Warren in New Jersey.

Press reports put at £2 billion the annual amount the merged company would spend on research and development, the most of any company in the world.

But the British Manufacturing, Science and Finance Union (MSF), which has 400,000 members, fears that 10,000 British jobs could go in the merger. Combined, the two companies have 21,000 employees.

"Nobody knows anything at all. It's all been done in secret by a handful of men in suits," said Mr Roger Lyons, general secretary of MSF.

"People are totally shell-shocked and confused. We are demanding urgent talks to find out what on earth is going on," he said.

The union has sent letters to the boards of both companies and the President of the Board of Trade in Britain, MS Margaret Beckett, voicing its concerns.

But spokespeople for the two companies would not entertain the union's argument. Ms Lynne Smith, for SmithKline Beecham, said: "It is pure speculation and they have no facts to base those figures on. It is too early to say anything."

Ms Nancy Pekarek, for Glaxo Wellcome, refused to comment on the union's concern, saying that no statement would be made while discussions were still underway.

Talks have so far concluded that shareholders of Glaxo would have 59.5 per cent of the capital of the new group, while SmithKline Beecham shareholders would have 40.5 per cent.