SMITHKLINE/INTERNATIONAL CLINICAL LABS MERGER WOULD CREATE $636 MIL

SMITHKLINE/INTERNATIONAL CLINICAL LABS MERGER WOULD CREATE $636 MIL. clinical lab business with a nationwide network of 35 laboratories. SmithKline made an unsolicited bid for ICL on March 24 via advertisements in the Wall Street Journal and New York Times. The firm said it is seeking to "to acquire control of, and the entire equity interest in," ICL. ICL, which operates 13 major testing facilities located primarily in the Southwest and West, posted 1987 revenues of $205 mil. SmithKline's Bio-Science Laboratories, the largest U.S. clinical lab company, had 1987 revenues of $431 mil. Bio-Science Laboratories operates 22 regional facilities and more than 200 auxiliary centers. SmithKline is offering $32 a share for ICL. Morgan Guaranty is managing the bid. The move comes two weeks after a friendly offer of $26 a share from Corning Glass. Corning is working with Lazard Freres. A Bio-Science/ICL combination would be about double the size of the next largest players in the clinical lab market. Corning's MetPath division generated sales of approximately $300 mil. in 1987; Roche's clinical lab business, with strength in the South and North, had $320 mil. in sales for the year. "The offer is consistent with our corporate strategy to invest in our key businesses and will build on the success of our clinical laboratories network," SmithKline Chairman Henry Wendt said in a March 24 release. "We believe ICL is a quality laboratory and a quality investment opportunity." While MetPath characterized the ICL buy as a good geographic fit with its existing labs, SmithKline is highlighting complementary services. ICL's growing insurance and corporate testing programs would complement Bio-Science's emphasis on AIDS testing, SmithKline said. The $32 offer is a 23% premium over Corning's bid, and is more than double ICL's February closing price of 14-3/4. Wall Street responded to SmithKline's offer by pushing the price of ICL stock up 8 points on March 24 to 33-3/4 as more than 2 mil. shares changed hands. SmithKline stock fell 2-1/8 to 55-1/8, while Corning was off slightly at 53-1/2, down 5/8. In addition to common stock, SmithKline is offering to buy ICL's convertible subordinated debentures at $2,299.35 per $1,000 of 10-1/2% notes due 1997 and $1,651.61 for each $1,000 of 7-1/4% notes due 2011. SmithKline estimates the total cost of all ICL equity at approximately $340 mil. Corning valued its bid for ICL at $260 mil. The tender offer expires on April 20 and is conditional upon receipt of a majority of ICL stock. SmithKline says it currently holds 84,300 shares of ICL stock, or about 1.1% of ICL's 7.6 mil. outstanding shares. The tender offer also is conditional upon the expiration of the waiting period mandated by federal law. The merger could meet resistance from the Federal Trade Commission as it would create an industry leader twice as large as any competitor. SmithKline must also determine that Tennessee antitrust law is inapplicable to the acquisition of Nashville-based ICL. In addition to the 7.6 mil. outstanding shares, ICL management holds 1 mil. shares that have been pledged to Corning. Corning's agreement with ICL also included a lock-up provision granting Corning an option for an additional 3 mil. unissued ICL shares.