Wall Street Journal | December 1, 1999 | By Wall Street Journal staff reporters Steven Lipin in New York, Anita Raghavan in London and Stephen D. Moore in Zurich
AstraZeneca PLC, the Anglo-Swedish pharmaceutical company, and Swiss drug giant Novartis AG are, according to this story, close to unveiling a merger and spinoff of their agricultural-chemical businesses, according to people familiar with the matter.
The new company, which will be spun off and combined into a new, separately traded concern, would be the biggest agrochemical business in the world, with sales of $8 billion and a potential stock-market value of $15 to $20 billion, these people say.
The story adds that the Novartis-AstraZeneca move is likely to trigger further consolidation within the $30 billion-a-year agrochemical industry. Drug-company executives, who at one time thought there would be great synergies in combining pharmaceutical and agricultural research activities, have grown disenchanted with the cyclical nature of the agrochemical business - which is currently in a severe downturn. Moreover, fierce opposition in Europe to the production and sale of bioengineered food has created uncertainty about companies' ability to earn an adequate financial return on crop-biotechnology investments anytime soon. Industry analysts were cited as predicting that the new Novartis-AstraZeneca agrochemical entity will be required to divest certain overlapping operations to win approval from antitrust authorties.
The new combined company would leapfrog Aventis SA to become the world's biggest agrochemical company with a market share of roughly 23%. The new company also would rank third in the world in seeds - even though AstraZeneca's seed affiliate Advanta BV will be excluded from the transaction, people familiar with the situation said.
The managements of the Novartis and AstraZeneca divisions will, the story says, lead the combined agrochemical company. Heinz Imhof, who currently heads the Novartis agrochemical division, will be named chairman of the new venture with Michael Pragnell, AstraZeneca's agrochemical chief, taking the post of chief executive, said people familiar with the transaction.
Given that Novartis's business is larger than the AstraZeneca division, the existing Novartis shareholders likely will own about 60% of the combined company, while AstraZeneca shareholders will own roughly 40%.
Novartis and AstraZeneca had indicated earlier this year their desire to withdraw from agrochemicals and focus exclusively on health care, where both also rank among global leaders. Both companies have announced plans for tough cost-cutting programs to counter identical 7% declines in agrochemical-division sales during this year's first nine months.
