SB buys Block Drug of US for $1.24bn

Smithkline Beecham, the drugs group finalising its merger with Glaxo Wellcome, yesterday doubled the size of its oral hygiene business with the $1.24bn (£827m) purchase of Block Drug, the US group behind Sensodyne toothpaste.

Smithkline Beecham, the drugs group finalising its merger with Glaxo Wellcome, yesterday doubled the size of its oral hygiene business with the $1.24bn (£827m) purchase of Block Drug, the US group behind Sensodyne toothpaste.

The move reinforces SB's commitment to over-the-counter (OTC) medicines in the face of continuing speculation that consumer healthcare, which represents one-third of group sales, does not have a long-term future in the group following its merger with Glaxo to form GlaxoSmithKline.

SB said the deal had been pursued independently of Glaxo, which was informed yesterday morning.

The purchase of Block will sustain SB's top-three position in oral hygiene. It will also bring an expert dental sales force to help SmithKline, owner of Aquafresh and Macleans,compete with its rivals Procter & Gamble and Colgate-Palmolive.

SB plans sweeping cost cuts with a view to lifting Block's margins from 7 per cent to SB consumer healthcare's 13 per cent. It declined to indicate the scale of job losses among Block's 3,000 workers, but said the deal would be earnings enhancing in its first year. Block's sales were $864m last year, against $614m for SB's oral hygiene franchise.

James Culverwell, an analyst at Merrill Lynch, said: "This gives SB critical mass in the oral hygiene market."

There was concern that SB is increasing its presence in the consumer market, which suffers from relatively low margins and poor growth. SB's consumer products made sales of $4.1bn last year, and include Panadol, the painkiller, and Ribena.

The buy is unlikely to face regulatory opposition, lifting SB's share of the US oral hygiene market only by around 3 per cent. It also poses few threats to SB's merger with Glaxo, given Glaxo's lack of OTC medicines.