Glaxo ditches Warburg for Hoare Govett

BY MAGNUS GRIMOND

SG Warburg, the blue-chip investment bank, was rocked by a new blow yesterday after it was dropped as broker by Glaxo, the drugs giant which is set to become Europe's biggest company after its near-£9bn takeover of Wellcome.

Warburg has been replaced by Hoare Govett acting jointly with Cazenove. The loss of such an important client follows a series of disasters at Warburg in the wake of the failure of its merger with its Wall Street rival Morgan Stanley in December.

In January, it announced it was pulling out of Eurobonds - a market pioneered by the bank's founder, Sir Siegmund Warburg - and a series of resignations and defections culminated in February with the departure of Lord Cairns, its chief executive.

Both Glaxo and Warburg yesterday denied that the bank's problems had anything to do with the latest decision, or that it resulted from irritation with Warburg's position as adviser to Zeneca, which was preparing a counter- bid for Wellcome.

A Glaxo spokesman said the formation of the new company, to be called Glaxo Wellcome, was "an appropriate time to review our corporate arrangements".

But that is unlikely quell speculation in the City, particularly as Zeneca's finance director, John Mayo, came from Warburg. One insider close to the Wellcome bid suggested that the close relationship between Zeneca and Warburg may have been the deciding factor in Glaxo's decision.

Warburg stood down as broker to Glaxo shortly after the Wellcome bid was announced, ostensibly as a result of a conflict of interest. The bank also acted for Wellcome as joint broker with Cazenove.

But it transpires that at least as important a reason was that Wellcome was unhappy with the number of advisers helping it to defend the bid, which also included Barings and Morgan Stanley. Warburg is understood to have been deeply disappointed at being dropped by Wellcome at that stage and the latest news is likely to have caused further dismay.

It is also likely to have been a difficult one for Sir Colin Corness, who took over as chairman at Glaxo in January, given his position as a non-executive director at Warburg.

He is understood to have been impressed by the performance of Peter Meinertzhagen, chairman of Hoare Govett Corporate Finance, during the course of the bid for Wellcome. Confirming his crucial role in winning Glaxo as a client, Andrew Chapman, the HG director involved in the day-to-day management of the takeover battle, said yesterday: "It was his relationship which delivered the company."

Expressing himself "thrilled and delighted" at being chosen, Mr Chapman suggested that Hoare Govett was the only name on Glaxo's shortlist of candidates. "They asked if we would like to continue [as brokers] and we said we would be more than happy to do so. We did not do a `beauty parade'."

A Warburg spokesman put a brave face on this latest set-back yesterday: "We have been brokers to Glaxo since 1989 and we very much enjoyed working with them at that time. But this does not come as a complete surprise as we couldn't work for either side during the bid."

Reports circulated yesterday that Glaxo was set to launch two "jumbo bonds" valued at about £1bn and up to $1.5bn (£1bn) respectively. The issues are thought likely to be used to restructure debt facilities to finance the Wellcome bid.