SmithKline CEO Stepping Aside, Opening Door for More Glaxo Chatter

Jan Leschly's departure could remove a major stumbling block to a merger with the fellow British drug maker, investors are speculating.
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SmithKline Beecham

(SBH) - Get Report

Chief Executive Jan Leschly will retire in April, five months earlier than Wall Street had expected, the company said Thursday.

The announcement had investors convinced the company may be headed for a merger with fellow British drug maker

Glaxo Wellcome

(GLX)

, with whom SmithKline held unsuccessful merger talks in previous years. Something that ultimately undid those discussions was the question of executive succession, with executives of both companies seeking the top spot in a combined firm. Leschly's departure could remove that hurdle, investors are speculating.

SmithKline shares rose 3 13/16, or 6%, to 70 13/16, while Glaxo shares gained 2, or 3%, to 61. (SmithKline closed up 4 1/4, or 6%, to 71 1/4 while Glaxo settled up 1 9/16, or 3%, to 60 9/16.)

Jean-Pierre Garnier, SmithKline's chief operating officer, will replace Leschly, the company said. Both men joined SmithKline in 1990, Leschly as chairman of the worldwide pharmaceuticals business and Garnier as president of the North American pharmaceuticals business. Leschly became chief executive in April 1994.

Many on Wall Street were expecting Leschly to retire near Sept. 11, his 60th birthday. Under his tenure, the company has courted Glaxo repeatedly.

"The major impediment to the drug companies merging has been choosing top management," said Michael Krensavage, analyst for

Brown Brothers Harriman

, which hasn't done underwriting for either company. "Chances are these companies will merge. There's consolidation all around, and they don't want to be left out in the cold." Krensavage rates SmithKline a hold and Glaxo a buy.

A company spokesman said Leschly's contract expires on his birthday, but he will retire earlier than expected so that Garnier can address shareholders as chief executive at the annual general meeting. That is scheduled to take place in London on April 28.

Corporate governance will be a major issue at the meeting, said Brian Jones, a spokesman for SmithKline.

Jones wouldn't confirm whether the decision signifies a new overture to Glaxo.

"We'll continue to monitor and evaluate the external environment," he said.

That environment includes the current fight between American drug makers

Pfizer

(PFE) - Get Report

and

American Home Products

(AHP)

to merge with

Warner-Lambert

(WLA)

.

"If the competitors have consolidated, you'd better consolidate as well," Krensavage said.