ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, March 8, 1996 TAG: 9603080071
SECTION: BUSINESS PAGE: B8 EDITION: METRO
DATELINE: NEW YORK
SOURCE: ASSOCIATED PRESS
The latest corporate megamerger is half a world away, but it will rock the fortunes of U.S. companies, endangering thousands of jobs and demonstrating that global forces shape business decisions.
The marriage of Swiss drug and chemical companies Ciba-Geigy Ltd. and Sandoz Ltd. will create the world's No. 2 drug maker with a broad array of products, including Ex-Lax, Maalox, and Ritalin.
The merger extends a three-year boom in health care deal making as companies struggle to shrink costs and focus on high-profit products, pressured by governments and insurers to control drug prices.
Ciba and Sandoz said they would eliminate 13,000 of their 133,000 jobs. Managers, salespeople and researchers will be just as vulnerable as factory workers, and the United States is expected to be a major target.
But the larger impact will come as other companies examine the threat posed by this new industry behemoth, to be called Novartis.
Sam Isaly, an industry analyst in New York, said the deal could prompt a spiral of ever-bigger mergers as competitors leapfrog each other in size and cut duplicate workers in attempts to stay profitable.
``Anybody below the top five in the industry has a very uncertain future, and even the top five can't be sure,'' he said.
The deal also illustrates that cost-slashing and job-cutting isn't just an American phenomenon. Most of the layoff-news lately has focused on U.S. pillars like AT&T and Scott Paper. But some of the biggest drug companies doing business in America are based abroad.
No cash will exchange hands in the Ciba-Sandoz merger. Stockholders simply will swap their shares for a stake in the new company.
Nonetheless, the deal is by far the biggest ever in the drug industry and one of the biggest corporate transactions in history. By one measure, its value is $27 billion, second only to the $33.8 billion takeover of Bank of Tokyo by Mitsubishi Bank Ltd. in March 1995.
Novartis annual sales will total 26 billion Swiss francs, or about $22 billion, excluding certain chemical and dye operations the companies intend to sell. Health care products would represent 59 percent of sales, agricultural chemicals and products 27 percent and nutrition products 14 percent.
Both Ciba and Sandoz have something of a checkered history. Both founded as dye companies, they combined after World War I in a drug and chemical cartel that lasted until the 1950s.
Experimenting with psychotropic drugs during that decade, Sandoz scientists created LSD, which remained legal until government authorities got wise to its bizarre hallucinogenic effects.
In 1976, Ciba admitted it had tested an insecticide by paying six Egyptian boys to stand in a field while they were sprayed. Two years later, 1,000 deaths in Japan were blamed on a Ciba diarrhea drug.
Today Sandoz is known best for drugs that suppress the immune system to ease kidney and other organ transplants, including its top seller, Sandimmune. In 1994, it bought the Gerber line of baby foods.
Ciba's best-selling products include Ritalin, the drug praised by many parents for calming their hyperactive children but reviled by others for its side effects. It also makes Voltaren, a painkiller for arthritis, and a line of contact lenses and eye care products. Its nonprescription medicines include Allerest allergy medicine, Acutrim diet pills, Maalox antacid and Doan's pills for back pain.
Ciba Geigy net profits last year rose 13 percent to about $1.9 billion, while Sandoz's soared 18 percent to about $1.7 billion.
However, the companies have been fending off attacks from competitors and are struggling to replace older drugs with new products.
``Both Sandoz and Ciba used to be among the top five in the world, but their ranks have been declining partially because of lackluster new products and mergers on the part of other companies. This allows them to regain their top-tier status,'' said Hemant Shah, a Warren, N.J.-based analyst.
Regaining that status will mean profound cost cutting that analysts said will hurt Switzerland and the United States the most.
``Both Sandoz and Ciba are very strong in the U.S. market, and they have a full infrastructure in place that offers enormous cost-cutting opportunities,'' Shah said.
The companies employ about 28,500 people in the United States.
LENGTH: Medium: 86 lines ILLUSTRATION: PHOTO: 1. AP Swiss-based Ciba-Geigy Ltd. and Sandoz Ltd.,by CNBwhich has its headquarters in Basel, will merge to become the
second-largest drug maker. Analysts predict more such mergers.
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2. chart - Another megamerger AP