Friendly Medicine

Are friendly mergers back in vogue? Just three days after the Delaware Supreme Court gave Time Inc. and Warner Communications the go-ahead to join forces, another megamerger was announced. Bristol-Myers (1988 sales: $6 billion) and Squibb ($2.6 billion) said they had agreed to an $11.2 billion stock swap that would create the world's second largest drug company. The friendly merger would be the largest so far in the current race to create globe-spanning pharmaceutical giants. The new company, with headquarters in Manhattan, would bring together such products as Bristol-Myers' Bufferin painkiller and Windex glass cleaner with Squibb's Capoten, a leading prescription formula for heart ailments.

The Delaware court rulings have created a more cordial climate for such deals. Before Time and Warner were allowed to consolidate, many companies feared that an agreement to merge would be tantamount to putting themselves up for sale. But the Delaware courts affirmed the right of corporate directors to pursue long-term strategies. Says Harvard law professor Reinier Kraakman of the new precedent: "This gives managers who are planning a friendly acquisition or a merger of equals a chance to go forward without losing out to a hostile acquirer."

For Squibb and Bristol-Myers a consolidation seemed a natural. It would weld Squibb's skill at research and development with its partner's worldwide sales force. "There is pressure on health-care costs throughout the world. U.S. companies are merging to obtain efficiencies of scale," says David Lippman, who follows the industry for Drexel Burnham Lambert.

In another deal that was driven by global ambitions, shareholders of SmithKline Beckman, developer of the anti-ulcer drug Tagamet, last week approved a merger with London's Beecham Group, which has built strong European markets. One week earlier Dow Chemical agreed to merge its Merrell Dow Pharmaceuticals subsidiary with Marion Laboratories, whose chief prescription drug is Cardizem, an angina treatment. In the afterglow of the Time-Warner marriage and other such deals, companies in many industries may gain greater confidence to embark on friendly combinations.