Merger Speculation for Parent Firm : Fullerton-Based Beckman Adopts Takeover Defense

Merger speculation sparked heavy trading Wednesday in the stock of Philadelphia pharmaceutical giant SmithKline Beckman Corp., and the company’s Beckman Instruments subsidiary in Fullerton said that it has adopted a “shareholder rights” takeover defense.

A Philadelphia newspaper reported Wednesday that SmithKline, the subject of recurring takeover speculation in recent months, had discussed a merger with British medical supplies manufacturer Beecham PLC late last year.

The Philadelphia Inquirer said SmithKline discussed merging its prescription drug business with Beecham and selling its non-drug businesses, such as Beckman Instruments.

SmithKline has disappointed investors because its leading drug, the ulcer medication Tagamet, is faltering. The company has not found another major product to replace it.

The discussions with Beecham broke up over the issue of who would control the new company, the Inquirer reported, and it was not clear whether the talks were continuing.

Nevertheless, SmithKline stock jumped $2.25 per share to close at $54.875 on Wednesday on heavy New York Stock Exchange trading of nearly 1.6 million shares.

Beckman Instruments stock rose 37.5 cents to $19.75 per share.

Beckman Instruments said its board on Tuesday approved a plan that will make a hostile takeover of the firm prohibitively expensive. The measure is identical to a poison-pill defense already in place at SmithKline Beckman.

“We know of no effort to take control of the company at this point,” said Jay Steffenhagen, manager of investment relations at Beckman Instruments.

SmithKline sold about 16% of Beckman Instruments stock to the public last year, and SmithKline executives have said that additional stock sales or even a complete spinoff are under consideration to boost the parent company’s lackluster profits.

Steffenhagen said Beckman Instruments has not been told whether SmithKline will sell more stock to the public. But analysts said it seems likely because SmithKline still owns 84% of Beckman and the subsidiary will not be vulnerable to a hostile takeover unless more than half of its stock is in public hands.

“You can infer that (adopting a poison pill) is a preliminary to more shares being sold to the public,” said Samuel D. Isaly, an analyst at S.G. Warburg & Co. “There’s no other reason to do it, since the control of Beckman now is not an issue.”

Analysts said that although they have heard the Beecham rumors concerning SmithKline for months, they haven’t heard of any potential big buyers waiting in the wings to snap up Beckman.

SmithKline has also said that it is deciding whether to sell or restructure other subsidiaries to shore up its fading profits. The subsidiaries include Orange County-based Allergan in Irvine, a maker of eye-care and skin-care products, and Bio-Science Laboratories, the nation’s largest chain of clinical laboratories.

SmithKline bought Beckman Instruments 6 years ago, when SmithKline was flush with profits from soaring sales of Tagamet, which at that time had little competition in the United States. Now the product is besieged with competitors, and SmithKline has no new drug with Tagamet’s profit potential.

Beckman Instruments, on the other hand, is doing well. The company reported a 9% increase in profits last year, to $42.5 million, and an 11% increase in sales, to $770 million.

The company makes instruments for medical laboratories and employs 3,500 people.