SMITHKLINE BEECHAM ANNOUNCES $807 MIL. RESTRUCTURING CHARGE TO ACCOUNT FOR PLANNED LAY-OFFS, PLANT SHUTDOWNS; 1989 DRUG SALES UP 17% TO $3.6 BIL.
SmithKline Beecham's planned consolidation could affect over 5,000 employees and 60 facilities worldwide. The company announced a one-time restructuring charge against pre-tax earnings of $807 mil. in reporting 1989 sales and earnings on March 14. SmithKline Beecham CEO Robert Bauman told reporters that an estimated 10% of the company's global workforce, which stands at 55,000, could be affected by the cutbacks. In addition, he reported that 60 locations worldwide will be shut down over the next three years leading to the $807 mil. charge related to planned plant closings, layoffs and asset write-downs designed to reduce debt. The closings will include 20 offices, eight production sites, 25 distribution facilities and seven non-U.S. R&D operations, a spokesperson said. SmithKline Beecham management noted that the restructuring charge "reflects the many actions we have already decided to take. These actions include consolidations of many sites, centralizing purchasing, manufacturing and distribution activities, and reducing the number of management layers." While acknowledging that "no significant benefit stemming from these actions is reflected in the 1989 results," SmithKline Beecham said its efforts "will improve our efficiency and productivity with some of the benefits realized as early as 1990." * The restructuring announcement was made in conjunction with the company's release of its first full-year unaudited results. Pharmaceutical sales worldwide increased 17% to $3.6 bil. Total sales increased 14% to $7.9 bil. with revenues from continuing operations up 16% to $6.9 bil. The merged detailing efforts of the SmithKline Beecham sales force is already having a positive impact on sales of Augmentin, which is now a $500 mil. product worldwide. Earlier this year, SmithKline Beecham began detailing Tagamet with its combined U.S. sales force and co-promotion of Augmentin, Tagamet, and Relifex is underway in the U.K. and Japan. In addition, the company's Dyazide is benefiting from the withdrawal of its generic competition (see related T&G, this issue). In the fickle realm of public image, the SmithKline Beecham merger is being panned and the Bristol-Myers Squibb marriage is being lionized as a smooth fit. In January, Bristol-Myers Squibb announced a similar write-off of $855 mil. to cover consolidation costs and the news was greeted with general approval. SmithKline Beecham equity units closed Wednesday, March 14 down 1-1/2 to 37-5/8. The equity units ended the week off 2-1/8 at 37-1/4. Indicating that restructuring charges are an expected part of the merger process, SmithKline Beecham Chairman Henry Wendt stressed the success of the integration efforts to date. "When we proposed the merger last April," he noted, "we set two major objectives for 1989: to lay the foundation for a new and better transnational healthcare company and at the same time maintain business momentum. We have achieved these objectives." Part of the foundation laying has been a thorough cleaning of SmithKline's pipeline. Since the July merger, several projects in development have been dropped. Among those out of the pipeline are the AIDS drug, soluble T4, manufactured by Invitron; a nasal bradykinin receptor antagonist being developed with Nova; a second generation TPA on hold with British Bio-technology; and oral fenoldopam for congestive heart failure. In addition to the $807 mil. restructuring charge, SmithKline Beecham also reported $124 mil. in costs associated with the merger transaction. However, these charges were partially offset by $158.2 mil. in tax relief and by after-tax profits of $215 mil. from the sale of certain operations. Over the past year, SmithKline Beecham has disposed of a number of non-core businesses to reduce debt associated with the merger, but has failed to find a buyer for its European cosmetics and Yardley fragrances business (sales of $605.4 mil.) and the Ambrosia, Bovril and Marmite food operations, which have added to corporate debt. During 1989, the company divested its UHU adhesives, North American household products, Horlicks Farms and Dairies and Bovril Canada businesses. Bauman predicted the company's debt "will be reduced significantly in 1990 from further disposals and cash flow from operations." While the delay in disposing of all non-core assets is keeping the debt level high, SmithKline Beecham noted that income from the non-core business did help offset the higher interest cost. Short-term debt at year-end was $1.59 bil. and long-term debt totaled $1.61 bil. Separately, SmithKline Beecham said on March 12 that it was relocating its pharmaceutical business, and 1,000 employees, from Spring Garden Street in Philadelphia to the SmithKline Beecham Building at Franklin Plaza, also in Philadelphia. The move will start late this year and be completed in 1991, the company said. Prior to its merger with Beecham in 1989, SmithKline Beckman had announced plans to relocate pharmaceutical operations and sell the Spring Garden facility. Late in 1989, consolidations in the U.K. at the company's Welwyn Garden City and Ridgeway, Hertfordshire and Crawley, Sussex sites were estimated by the company to be responsible for the elimination of 344 positions over a two-year period ("The Pink Sheet" Dec. 18, "In Brief").
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