SmithKline to sell US units for $ 2 billion

SmithKline is planning to sell its pharmacy benefit business Diversified Pharmaceutical Services to Express Scripts, a US rival in that field.

The price tag for that unit expected is about $ 700 million to $1 billion, considerably lower than the $ 2.3 billion paid for the business in 1994. The acquisition then was a hedge against President Clinton’s proposed reforms of US healthcare policy, which never materialized in the form anticipated. The business barely broke even.

"At the time it seemed like the right strategy when no-one knew what the outcome would be of Clinton’s healthcare strategy, so you can’t be tooharsh on the management here," says Steve Abbott, pharmaceuticals analyst at Credit Lyonnais Securities.

SmithKline’s (SB) blood diagnostic business, Clinical Laboratories, is being snapped up by competitor Quest Diagnostics for about $1 billion.

Although profitable, the margins are considerably lower than the rest of the group.

The two disposals will allow the company to focus on its core business of developing and marketing drugs.

The move will also spark speculation that the pharmaceutical giant is to announce a merger "That is certainly the case," says Abbott, who points out that before last year’s merger between Zeneca (ZEN) of the U.K. and Sweden’s Astra, the former announced the disposal of its specialty chemicals business.

Andrew Baum, pharmaceuticals analyst at Morgan Stanley Dean Witter, concurs. He believes SmithKline will start looking at a possible deal with Glaxo Wellcome (GLXO) again, after talks failed last year.

"It would be foolish to discount that." But SmithKline’s chiefexecutive Jan Leschley denied that speculation, saying the company is determined to remain independent. SmithKline’s shares were up 3.5 per cent at 827 pounds in London.