He added that Glaxo had not been performing brilliantly recently. Its interim results in February are expected to be poor, with sales of Zantacdeclining.Excluding the four directors who own none or small amounts of shares, the remainingdirectors made an average of £390,000 a head yesterday. One analyst said: “Initially I was surprised but having looked at it I’m pretty encouraged It’s a consolidating industry withtoo much capital in it. Wellcome was never recognised as a leading marketing organisation whereas Glaxo is.”Another said that the deal was a short-term way of adding a chunk of sales and cutting out costs. Glaxo recently opened a £710m research centre in Stevenage, and has spare capacity there.In the City, the deal was greeted with approval though most saw itas an exercise in cost- cutting rather than strategic vision. Glaxo has 45,000 employees and Wellcome has 17,000 – there are certain to be significant job losses Research is another area where the axe may fall.

Wellcome posted profits of £667m on sales of £2.04bn.Although Sir Richard did his best to paint a rosy picture of the strategic logic of the deal, it s clear that there will be radical cost-cutting. He pointed out that this was an industry where the market leader only held a 3.9 per cent share.On the Wellcome bid he said: “We looked at it for quite some time. We believe it will be manageable to integrate this business with our own. Anyone bigger than Wellcome would be difficult.”Last year Glaxo achieved pre-tax profits of £1.8bn on sales of £5.56bn. Sir Richard said: “We looked at that when it was fashionable but decided against it.” He said there were too many drugs companies duplicating too many functions.

Squeezed by lower prices and regulatory changes the drugs companies are also up against pharmacy benefit managers (PBMs), big buying groups which supply hospitals with drugs from a number of manufacturers and use their buying muscle to achieve keen prices from the drugs groups.The changes have sparked a merger frenzy between some of the world’s largest drugs groups.It is know that Glaxo considered buying a PBM but decided against it. Glaxo plans to fund the deal through a combination of cash and bank borrowings.If successful the deal would create the world’s largest drugs group under a new name – Glaxo Wellcome. Glaxo, which makes the Zantac anti-ulcer drug which accounts for 45 per cent of sales, is currently neck and neck with Merck, the US group, for leadership of the world’s highly fragmented pharmaceuticals market. Glaxo claims to have nudged ahead, because of dollar movements.Both have a market share of around 3.9 per cent, with Wellcome ranked 20th with 1.4 per cent. It would also create Britain’s largest company with a market capitalisation of more than £28bn.Glaxo has not made an acquisition since 1977. The former chairman, Sir Paul Girolami, was a firm opponent of takeovers.

But he stepped down from the chair late last year.Explaining the rationale for the bid Sir Richard Sykes said the pace of change in the drugs market meant Glaxo could no longer stand on the sidelines. The offer is for £722 in cash and 47 new Glaxo shares for every 100 Wellcome shares Wellcome shares soared 273p to 961p Glaxo’s shares fell 44.5p to 599p. The agreement is not legally binding but one adviser said that it was “a bit silly” for the Trust to have reached an agreement with a hostile bidder without consulting the Wellcome board.Glaxo’s £8.9bn offer values each Wellcome share at 1025p, compared with the share price of 688p at Friday’s close. One is the 1992 memorandum of understanding signed by the Trust and the Wellcome Foundation, which states that the Trust will maintain a long-term shareholding of at least 25 per cent.