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7-Misc: Novartis takes scythe to agrochem division



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TITLE:  Novartis takes scythe to agrochem division
SOURCE: Dow Jones News, by Stephen D. Moore
DATE:   June 23, 1999

----------------- archive: http://www.gene.ch/ ------------------


Novartis Takes Scythe To Agrochem Division

ZURICH -- Bracing against hard times on the farm, Novartis AG
ordered a sweeping overhaul of its agrochemical division
including elimination of 1,100 jobs, roughly 7% of the division's
payroll world-wide. The measures are expected to yield annual
cost savings of more than 100 million Swiss francs (62.6 million
euros) from the year 2001. Novartis officials said that a one
time restructuring charge of about 90 million francs will be
included in company accounts for the first half of this year. The
cost-reduction blitz had been expected since a management
reshuffle at the agrochemical division last month. Novartis
stocks fell 1.2%, or 29 francs, to 2,394 francs in Zurich
trading.

At the same time, Novartis remains in discussions that could lead
to divestment of the agrochemical division by year end. According
to people familiar with the situation, management's preferred
option would be a merger with another company's agrochemical
operation, followed by a spin-off of the combined company to the
respective parents' existing shareholders. Other possibilites
under consideration include a simple spin-off of Novartis's own
division or a swap of the agrochemical business for another
company's drug operations, people familiar with the situation
said.

At least two major rivals, AstraZeneca PLC and American Home
Products Corp. also are contemplating divestments of their
agrochemical divisions, these people said. American Home recently
acknowledged that its agrochemical business is on the block
though AstraZeneca to date has declined public comment about its
plans.

The tumult rippling through the $30 billion-a-year agrochemical
industry reflects bleak growth prospects in coming years. Reduced
government subsidies to farmers along with depressed commodity
prices have spurred a deep cyclical downturn, industry executives
said. Moreover, a technology revolution is forcing companies to
make huge investments in new genetic and biotech research tools
at a time when public opinion in Europe has turned against
genetically modified crops, leaving uncertain future rates of
financial return. In an interview, the new head of Novartis's
agrochemical division Heinz Imhof reaffirmed earlier forecasts
that the division's sales will decline this year. "And we don't
expect much improvement next year either," Mr. Imhof said.
"Market conditions deteriorated faster than we expected during 
the past six months -- so we're taking these cost-saving steps to
lower our break-even point and redefine the way we want to
compete in the future."

The cost-reduction program will involve closure of plants around
the world, Mr. Imhof said, though he insisted that decisions
about the fate of specific plants haven't yet been made. In
addition, the division's product range will be pruned, weeding
out older herbicides and insecticides and reinvesting the savings
to bolster marketing of newer products. "Killing the right
products now can save a lot of money," Mr. Imhof said. Product
development also will be overhauled. "Over the past decade, the
industry has launched far too many products -- and relatively few
have managed to recoup their development costs," Mr. Imhof said.
In the future, Novartis plans to shrink the number of new product
launches to only one per year from a traditional average of about
three per year, he said. "And we'll try to accelerate our
development timetable and ramp up sales more aggressively after
launch."

Mr. Imhof also vowed to sustain investment in new technologies
such as genetically engineered seeds -- but he acknowledged that
the political and public opinion backlash has set back the
potential introduction of transgenic products in Europe by
several years. "It's a slowdown of at least three to five years,"
he said. "That doesn't prevent product development and you can
still test and distribute transgenic seeds to processors willing
to use them. But in Europe the story will be one of using
conventional breeding techniques," he added. For Novartis, the
world's No. 2 agrochemical company, that means exploditing
prowess in vegetables in close cooperation with big food
retailers across Europe. "If retailers in the U.K. or Germany
source their vegetables in Spain, we'd work directly with Spanish
growers to breed new traits and help retailers build strong
vegetable brands," Mr. Imhof explained. By contrast, crops like
oilseed rape, corn and sugar beets "are a closed loop where
processors define the characteristics they want and seeds bred by
Novartis are delivered by Novartis with little additional
involvement to farmers under contract to grow the crops."

Despite the current political brouhaha, Mr. Imhof remains upbeat
about the long-term prospects for transgenic crops and vegetables
in Europe. The problem so far, he added, "is that first
generation transgenic products only have provided benefits to
farmers, especially in high-intensity agriculture. What's still
missing is a really good product that brings clear benefits to
consumers." Novartis scientists are racing to fill that gap by
engineering vegetables with increased levels of vitamins or
offering other nutritional advantages. Other projects include
sunflowers enriched with low-cholesterol oils or corn and wheat
bred to produce special starches. Yet in some cases, Mr. Imhof
admitted, "it will take at least 10 years to develop the new
varieties and win consumer acceptance for them." In Europe, the
market turmoil is further complicated by the fact that many
smaller countries simply aren't competitive in mainstream
agriculture and have to concentrate on niche markets such as
organic vegetables. Such countries likely will be the slowest to
allow the introduction of transgenic proiducts, Mr. Imhof said.

Then too, "consolidation is adding turmoil on top of what's
happening in agriculture, Mr. Imhof added. "The flurry of deals
we've seen in seeds during the past couple of years has
intensified pressure on prices -- and there's no sign of that
changing anytime soon."



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