Novartis (NOVZn.S) eyes ag chem divestment

By Kevin Drawbaugh

  
LONDON, Sept 15 (Reuters) - Swiss drug giant Novartis (NOVZn.S), hurt by 
competition from genetically modified crops and lower commodity prices, said 
on Wednesday it was looking at strategic options for its agricultural 
products business. 

Novartis said it had started a review alternatives, including possibly a 
spin-off or an alliance. 

"We are considering a number of options, from keeping the present set-up to 
maybe something completely different, which could be a spin-off, or maybe 
even an alliance with another corporation," said agribusiness unit chief 
Heinz Imhof. 

Speaking to journalists at company headquarters, Imhof said he had discussed 
the matter with chief executive Daniel Vasella. 

Shares in the maker of prescription drugs and a wide array of agricultural 
herbicides and fungicides fell six euros per share to 2,205 in Swiss trading. 

Industry analysts said Novartis had been expected to act soon on its 
under-performing agriculture business, but that it was difficult to know what 
the outcome of its review would be. 

"There are a number of players who would like to do some sort of 
arrangement," said drug industry analyst Stewart Adkins at investment bank 
Lehman Brothers in London. 

Potential buyers or partners for the agribusiness unit could include the 
chemicals giants BASF (BASF.DE), Bayer (BAYG.DE) or Dupont (DD.N), all of 
which were seen by analysts as working to expand in agricultural chemicals. 

Other companies viewed as hoping to exit the fast-changing ag chem business, 
as well, were drug makers Astra-Zeneca (AZN.L) and American Home Products 
(AHP.N), analysts said. 

In 1998, around 26 percent of Novartis' annual revenues came from its 
agribusiness operations. 

"Novartis has been talking about this for a while, as has AHP. Zeneca has 
said the same thing," said industry analyst Alex Zisson at investment bank 
Hambrecht & Quist in New York. 

FARMERS CUT BACK 

With agricultural commodity prices at 20-year lows, farmers are cutting back 
on marginal inputs, such as crop herbicides, fungicides and pesticides, 
analysts said. 

In addition, the soybean segment of the crop chemical market is increasingly 
dominated by the top-selling Roundup herbicides from U.S.-based agriculture 
innovator Monsanto (MTC.N). 

Finally, Monsanto has also hurt competitors with its Roundup Ready soybean, 
genetically engineered to work with Roundup. "Monsanto has changed the rules 
of the game," Adkins said. 

About 55 percent of the important U.S. soybean crop this year was planted 
with genetically engineered seeds, and about 35 percent of the corn crop, 
despite signs that demand and prices are rising for non-genetically modified 
foods. 

Novartis also said on Wednesday that it expects to exceed its target of 
cutting 1,100 agribusiness jobs over the next two years. It said savings from 
the job cuts could produce synergies of up to 300 million Swiss francs 
($192.9 million) over the next four to five years. 

The company said it was targeting growth above the industry average in 
agribusiness, while growth in the market overall was likely to remain slow. 

15:28 09-15-99