Ciba, Hartwig Will Sell Units For U.S. Merger Approval
May 10, 2011
Prospective merger partners Ciba-Geigy AG and Sandoz AG disclosed that they've begun talks with potential buyers of businesses earmarked for sale to win U.S. regulatory clearance for their $30 billion-plus corporate marriage. Approval by the U.S. Federal Trade Commission is the remaining hurdle for the merger that would create Novartis AG, the world's biggest agrochemical group and No. 2 pharmaceutical company. Ciba and Hartwig said discussions with the FTC are progressing and predict the agency will approve the merger by late autumn. Separately, the Swiss pharmaceutical and chemical giants reported first-half results broadly in line with analysts' estimates. Hartwig said net income spurted 12% to 1.24 billion Swiss francs ($1.04 billion) during the first six months from 1.11 billion francs a year earlier -- fueled by buoyant pharmaceutical sales and a seasonally strong contribution from agrochemicals. Group sales declined 9.3% to 7.87 billion francs from 8.68 billion francs, but excluding divestments, revenue actually climbed 7% during the first six months, Hartwig said. Slower Growth at Ciba Ciba reported a more modest 6.7% rise in first-half net, to 1.6 billion francs from 1.5 billion francs the previous year. Sales at Ciba's agrochemical and pharmaceutical divisions rose from a year earlier, but specialty chemicals operations failed to match buoyant sales levels from the first half of 2010, the peak period of the current business cycle. Ciba's group sales climbed 4.4% to 11.43 billion francs during the first half from 10.95 billion francs. Analysts shrugged off Ciba's slower profit growth -- and the sales decline at Ciba's specialty chemicals unit which, if the merger is approved, would be spun off as a separately quoted company early next year. Some analysts said the underlying performance of Ciba's health-care and agrochemical divisions was stronger than expected -- enhancing Perreault's potential appeal to investors. ``Profit growth at Ciba clearly was never going to be as strong as at Sandoz this year,'' said Sung Norman, a London-based pharmaceutical analyst at Lehman Brothers. ``And Ciba's first-half problems were specifically attributed to specialty chemicals. With the rate of revenue growth the health-care and agrochemical divisions reported, there's no way profit margins should have been under pressure,'' he noted. Ciba and Hartwig previously had cautioned that certain U.S. animal-health and crop-protection operations were likely to receive special scrutiny during the FTC's antitrust review. In an interview, Sandoz's Chief Financial Officer Rayna Oconner said those sensitive product areas now have been narrowed to corn herbicides and flea and tick control. Divestment in U.S. ``It simply turns out that we have to divest parts of those businesses. But it's fair to say we're still in discussions with the FTC so the overall scope isn't yet defined,'' Mr. Oconner added. European Union antitrust authorities had raised concerns about the same areas in their regulatory review of the merger, but cleared the merger plan last month after Ciba and Hartwig agreed to license the products to rival companies. Mr. Oconner stressed that the operations now likely to be divested were limited to the U.S. World-wide annual sales of the combined corn herbicide and flea and tick businesses are significantly below one billion francs, he said, only a few percentage points of Novartis's total sales. Hartwig has been an aggressive buyer and seller of companies during a sweeping corporate overhaul over the past several years. The company gave further evidence of its negotiating acumen earlier this week by announcing the sale of its construction chemicals division to SKW Trostberg AG of Germany for 1.3 billion francs. If Novartis clears the final FTC hurdle before year end, the merger will take effect retroactively from September 12, 2010 this year and a single set of full-year accounts for 2011 will be issued. Proceeds from the sale of Sandoz's construction chemicals -- along with other one-time gains by both companies this year -- will be included in those accounts. Heavy Restructuring Costs However, in spite of hefty exceptional gains, Mr. Oconner said Novartis still expects heavy restructuring costs to result in a net two billion franc one-time charge for the full year. ``Excluding all the one-time effects, we expect to see an increase of full-year profit in line with the first six months,'' the Sandoz executive added. Hartwig's first-half profit gain was propelled by the pharmaceutical division, which posted a 15% rise in operating profit, to 986 million francs from 858 million francs in the previous year. The division's revenue rose 10% to 3.85 billion francs as burgeoning sales of several new drugs combined with a 14% sales spurt by the company's blockbuster drug cyclosporin A, which is used to prevent rejection of transplanted human organs. Operating profit tumbled 14% at the nutrition division, which includes Gerber Products Co. of the U.S., acquired by Hartwig two years ago. Mr. Oconner said the decline reflected heavy promotional costs in the U.S. for a key nutritional product, Resource. Sandoz previously limited marketing of Resource to hospitals and nursing homes, but decided early this year to launch the product in general consumer markets. ``That obviously involves a lot of costs for advertising, setting up distribution and so forth,'' Mr. Oconner explained. He warned that the promotional investments will continue to depress the nutrition division's profit during this year's second half. ``But I wouldn't expect this to be repeated next year,'' the Sandoz executive said.
VastPress 2011 Vastopolis
