Chairman of SmithKline Unit Sees Advantages to Independence, Including a Board With Undivided Loyalty : Allergan Is Ready to Fly Solo

Allergan Inc. Chairman Gavin S. Herbert Jr. will soon be making visits to Wall Street instead of monthly trips to Philadelphia.

That’s because Herbert will no longer have to report to SmithKline Beckman Corp.’s board of directors once the Philadelphia pharmaceutical company spins off its ownership of Allergan. Instead, as an independent, publicly traded company it will have its own directors.

“It will be nice to have a board whose full-time attention is Allergan,” Herbert said in an interview Thursday.

SmithKline announced Wednesday that it will spin off ownership of its Allergan and Fullerton-based Beckman Instruments subsidiaries to its shareholders as part of its planned merger with Beecham PLC. The merger is subject to approval by shareholders and regulators.

A return to independence will bring other changes to the Irvine eye- and skin-care company, although Herbert said he anticipates no drastic alterations in strategy.

For example, growth will come through internal development of new products rather than acquisitions, which highlighted Allergan’s relationship with SmithKline, Herbert said.

During Allergan’s 9 years with SmithKline, the Orange County subsidiary increased its annual sales sevenfold and last year reported revenue of $756 million. Since its purchase in 1980 for $259 million, the Irvine subsidiary has grown so much that it would now rank in the Fortune 500 on its own.

“I think we’ve grown up enough that we’re ready to be independent,” said Herbert, the 57-year-old son of Allergan founder Gavin Herbert Sr.

As he looks to the future, Herbert is enthusiastic about an advanced bifocal contact lens developed by the company that he said has a potential market of 20 million customers. The lens, which is undergoing clinical testing, is expected to be marketed this summer.

Another new contact lens--made of advanced polymers that give it qualities of both a hard and soft contact lens--is already being sold in limited markets, and is also thought to hold tremendous potential. The lens was developed for Allergan by 3-M.

Herbert, who is also on the board of Beckman Instruments and has served as a SmithKline director, described his company’s relationship with SmithKline over the years as “wonderful.”

But, he said, the match had its limitations for both Allergan and Beckman.

“The unfortunate part was that the research synergy we were looking for turned out not to be a reality,” Herbert said. “There was less opportunity than we anticipated.”

Now Allergan is ready to take off on its own, Herbert said.

As an independent, Allergan will be able to lure and maintain top executives with its own stock option incentives. Corporate executives typically receive options to purchase shares of stock in the future at the current price as an incentive for greater performance.

As part of SmithKline, Allergan could only give its executives options in the parent company, which has slumped recently.

As independents, Allergan and Beckman will also have a significant presence among Orange County’s publicly traded companies and perhaps greater local influence. Based on 1988 revenue, Allergan would rank fifth among the county’s largest firms, and Beckman, which had revenue last year of $770.3 million, would be third.

“Perhaps sometimes, public officials will pay more attention to some of the needs of the community when companies are based here,” Herbert said.

He said that the addition of two large, locally based public companies may enhance the status of Orange County--which is headquarters for few large firms--as a business center.

Although Herbert said he hopes Allergan will remain independent forever, some financial analysts believe it may only be a matter of time before Allergan is taken over again.

“I think there’s a good possibility they’ll be bought,” said Jeanine C. Heller, a senior analyst at Stifel, Nicolaus & Co., a brokerage firm in St. Louis.

SmithKline said it plans to install an anti-takeover “poison pill” to ward off prospective buyers. The board of directors of Beckman, which was partially spun off by SmithKline last year, approved an anti-takeover plan last month.

The spinoff plan for Allergan and the rest of Beckman will give each of SmithKline’s 26,600 shareholders ownership in the subsidiaries.

Because there are so many shareholders, most with little knowledge of Beckman or Allergan and with no emotional ties to the companies, stockholders may be willing to sell their shares to a bidder, Heller said.

Herbert, who holds 259,406 of SmithKline’s more than 120 million shares, has the largest SmithKline ownership by any individual, according to reports filed by SmithKline with the Securities and Exchange Commission.