Akzo Nobel plans to break structure, list drugs unit
Tue Feb 7, 2006 5:12 AM ET
By Nicola Leske
AMSTERDAM, Feb 7 (Reuters) - Dutch chemicals and drugs group Akzo Nobel NV took the first step to ending its hybrid structure on Tuesday, saying it would list part of its pharmaceuticals unit separately this year, boosting its shares.
Akzo, the world's largest coatings maker, said it planned to split into two companies, one focusing on the core business of coatings and chemicals, and the other on pharmaceuticals, within three years of a listing of its drugs unit set for the second half of 2006.
Investors gave the thumbs up to the move, and shares in the group rose 6.7 percent in Amsterdam to 43.06 euros at 0920 GMT, easily the top gainer on the DJ Stoxx European chemicals index <.SX4P>.
Akzo shares have risen 25 percent in the past year on speculation that the company could sell or separate Organon.
"As a logical step and after a thorough strategic review, we believe that creating two independent companies, Coatings/Chemicals and Pharmaceuticals, will enhance shareholder value," Chief Executive Hans Wijers said.
Organon had revenues in 2005 of 3.5 billon euros.
Industry analysts say pressure has grown on Europe's remaining hybrid companies to break up and focus their businesses in recent years, following past demergers by Europe's leading companies.
The Akzo decision comes at a time when Germany's Altana, one of the few other hybrids left on the continent, plans to list its smaller chemicals unit. Last year, Bayer spun off most of it chemicals business into Lanxess.
Investors have shown a marked preference for "pure play" companies rather than conglomerates.
Germany's BASF AG spun off its pharmaceuticals division in 2000, the same year that Swiss Novartis AG and Anglo-Swedish AstraZeneca Plc decided to focus on healthcare by splitting off agrochemicals.
"This is a decision we have been waiting for for over 10 years. It is a positive effect because chemicals and pharma do not have any synergies," Mark van der Geest at Rabo Bank said of the Akzo move.
Akzo said the final timing of the revamp would depend on developments within Organon's drug pipeline, including Phase III data on schizophrenia drug asenapine.
Colin Isaac, analyst at JP Morgan, said the Akzo move could raise the pressure on other hybrids, such as Belgium's Solvay, to break up.
"Akzo's looks like a pretty sensible move. If the Phase III data on asenapine is strong, they will have something to sell once they go to the market. And the chemicals/coatings business is strong on a standalone basis."
Toon Wilderbeek, Akzo board member responsible for pharmaceuticals, will head Organon Biosciences, the new drug company in which Akzo will sell a minority stake through an IPO in the second half of this year.
Morgan Stanley and ABN AMRO are advising the company on the restructuring.
RESULTS IN LINE
Akzo reported net profit roughly flat at 961 million euros ($1.15 billion), in line with the company's targets and analysts' expectations. Revenues were 13 billion euros, up 6 percent from a year ago.
The company did not give a precise forecast but said this year it would deliver continued sales improvement.
A full separation of the chemicals and drugs business is expected within two to three years.
Many analysts have suggested Akzo would be better off selling Organon, founded in 1923, saying it is too small a player in the pharmaceuticals industry and demands a disproportionate amount of attention relative to its rewards.
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