announced Wednesday that they would spin off then merge their agricultural units, creating the largest manufacturer in crop protection and the number three player in seed production.
The two corporate pieces will come together in Basel, Switzerland, where Novartis is based, under the name
. The two units had combined sales of $7.9 billion in 1998; analysts speculate that number could climb north of $8 billion next year. The deal is valued at over $15 billion, according to most estimates.
But questions lingered about AstraZeneca's 50% holdings in
, a seed maker, which was not part of the merger. "They haven't brought it in yet, but they're looking to," said Mark Purcell, an analyst at
Donaldson, Lufkin & Jenrette
. "That would put them on par with (number one seed producer)
in terms of sales." Purcell rates AstraZeneca a buy and Novartis a market performer. His firm has not underwritten any offering for either company.
Shares of AstraZeneca closed down 1 1/16, or 2%, to 44 3/16 in U.S. trading,. while Novartis closed up 21 francs to 2,500 Swiss francs on Wednesday.
AstraZeneca, itself a merged entity comprised of British
, is based in London.
"Overall, I think it's positive," Purcell said. "It will add about 3% to 4% to AstraZeneca's and Novartis' bottom line."
Under the agreement, Novartis shareholders will receive 61% of the joint venture and AstraZeneca shareholders will get 39%.
"The creation of Sygenta marks the most exciting milestone in the history of both businesses," Heinz Imhof, former head of Novartis' agribusiness and chairman designate of Sygenta, said in a statement. "The combination will allow us to create a leading high-performance company with an excellent competitive position providing the base for a sustainable increase in shareholder value."
After the related costs of the joint venture, the companies expect to save $525 million within three years of the merger completion date through administrative expenses, leveraging research and development programs, and streamlining manufacturing, supply and distribution areas.
"Zeneca Agrochemicals and Novartis' agribusiness are an ideal fit with complementary product portfolios and a strong international sales and marketing culture," said Michael Pragnell, current chief executive of Zeneca Agrochemicals and chief executive designate of Sygenta. "Syngenta's unique focus and its outstanding science base will enable it to enhance value creation in agriculture at a time of substantial industry change."
In additional, the pharmaceutical companies said they would shed 3,000 workers worldwide from the combined crop protection employee base.
Severed from the larger pharmaceutical business, this merger creates the first "pure play" in the agribusiness at a time when big pharmaceutical companies' earnings have been diminished by weaker sales in this sector. In its latest reported quarter, Novartis said its animal health and seeds sectors
to a loss of 7% "amid continuing adverse market conditions."
Agribusiness sales fell 41% in the first half of 1999 from a year earlier.
Sales for AstraZeneca's Agrochemicals unit fell 5% in the six-month period this year over last year.
"It's not a good time to sell these businesses; but it's a great time for a joint venture," Purcell notes.
The transaction is conditional upon shareholders' approval and the stock is expected to be listed in the second half of 2000 in Swiss, London, New York and Stockholm exchanges.