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Thursday, 2 December, 1999, 20:04 GMT
Merger creates $20bn agro-business

The Swiss chemical giant Novartis and its Anglo-Swedish rival AstraZeneca have announced that they will spin off and merge their agrochemical businesses, creating a company with annual sales of about $7.9bn, and a market value of up to $20bn.

But in a drive to cut costs, the combined company will lose some 3,000 jobs worldwide. Within three years, this and other measures are to generate savings of $525m a year.

Headquarter: Basel
Employees: 23,500
Combined sales: $7.9bn
Stock value: $20bn (top estimate)
Research budget: $700m
The new firm will be called Syngenta, with headquarters in Basel, Switzerland. Heinz Imhof, currently head of Novartis Agribusiness, will become its chairman.

Tom McKillop, AstraZeneca's chief executive, said the new company could expect to benefit from the expected recovery of the agricultural business: "We don't anticipate a fast recovery, but the business will definitely improve."

He said Syngenta would be in a good position to benefit from the recovery, given its leading market position.

Based on 1998 sales, the firm will be the world's number one in crop protection and number three in seeds.

Swiss dominance

Shareholders of Novartis will own 61% of the new company, AstraZeneca's will control 39%.

Crop protection will make up 87% of the business
But even though Syngenta's chief executive is a Novartis man, each parent company will nominate half of the firm's 12 board members.

The deal will be complete in the second half of next year.

Novartis' animal health business and AstraZeneca's 50% holding in Advanta are not included in the transaction.

Novartis was formed after the merger of Swiss chemical firms Sandoz and Ciba in 1996, which at the time was the largest merger in history.

Sector shake-up

Analysts had forecast for some time a merger shake-up for the agro-chemical sector.

But it is an ominous sign for the whole bio-technology industry, where hopes of synergies between healthcare and the agro-chemicals business were once driving mergers and acquistions.

The board of Novartis now says that "the benefits of concentrating on the healthcare businesses outweigh the modest synergies between the Healthcare and Agribusiness activities".

AstraZeneca cuts research department

In a separate development, AstraZeneca announced plans to cut its research and development staff by about 10%, or 1,000 people, during the next two years.

The company will "concentrate" its research units at larger research facilities in Sweden, Britain and North America.

Staff reductions will focus on eliminating overlaps, mainly spread across sites in Sweden's Sodertalje, Molndal and Lund, at Alderley Park and Charnwood in Britain and at Wilmington in the United States.

Out of the total reduction of 1,000 positions, 450 will be made in Sweden.

Shares in AstraZeneca had a bumpy ride following the announcement, falling 118 to 2,727. Even upbeat comments on full year prospects failed to stem the decline.

Several brokers said much of the news was already in the price. Warburg Dillon Read used the opportunity to cut its stance on the shares to a 'sell' from a 'reduce'.

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See also:
29 Nov 99 |  Business
'Most international mergers fail'
29 Oct 99 |  Business Basics
Mergers, how do they happen?
19 Jul 99 |  The Economy
UK leads the merger frenzy
18 Aug 99 |  The Company File
Why bigger is not always better
10 Dec 98 |  The Company File
Zeneca and Astra merge to form drug giant
03 Aug 99 |  The Company File
AstraZeneca profits fall

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