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. Last Updated: 07/27/2016

Roche to Spin Off $4Bln Flavor Unit




ZURICH, Switzerland -- Swiss pharmaceuticals group Roche Holding AG said Monday that it planned to spin off its fragrances and flavors division into a new company called Givaudan that could be worth $4 billion.


Roche said the spin-off would allow it to position itself more strongly as a research-based healthcare company.


Analysts said the move by Roche to focus more on healthcare bore similarities to a move by other Basel-based drugs giant Novartis AG, which said Thursday that it was putting its agrochemicals business in a new Syngenta joint venture company with Astra-Zeneca PLC prior to a float.


"It is a good operation because it makes Roche a pure drugs play and therefore it should be able to trade at higher multiples," said analyst Meinrad Gyr at Z?rcher Kantonalbank.


"It reminds me of Novartis," Christopher Chandiramani of CS Private Banking said. "They step out of something where they were not satisfied about the margins. That is what analysts and investors want - focus. Focused companies are rewarded with higher valuations."


But while both Swiss drugs groups are now easier to integrate in a larger health group, a straight "Rochartis" merger was unlikely.


"That would get the merger authorities up in arms," Chandiramani said, adding further international alliances involving the two, but not both, were possible.


Roche said the spin-off would be a largely tax-free transaction in which shares in the new Givaudan company would be distributed as a special dividend. The division, currently named Givaudan-Roure, is a leading maker of fragrances and flavors that go into perfumes, food and beverages.


Holders of Roche shares and non-voting equity will receive one Givaudan registered share for one of the two kinds of stock.


At 9:50 a.m. London time, Roche non-voting stock was trading 85 Swiss francs lower ($53.95) at 19,215 Swiss francs ($12,135.35) after earlier reaching a year high of 19,415 Swiss francs.


The operation is subject to approval by Roche shareholders at the May 9 annual general meeting. Trading in Swiss-listed Givaudan registered shares is expected to start in May 2000.


Chief executive Franz Humer said the spin-off would let Roche concentrate on its remaining drugs, diagnostics and vitamins businesses.


"Strategically we have always said we are going to try to be among the leaders in all those activities in which we are present. With the acquisition of Tastemaker [in 1997] and the successful integration of Tastemaker we have created - in sales - the leading company in fragrances and flavors.


"Also in terms of operating profitability we have made substantial progress this year and this is now a division that can stand on its own."


Asked if Roche was not at least talking to other drug companies about possible linkups, Humer said, "No, we are not."


He dismissed market speculation that Roche may be interested in German drugs firm B?hringer Ingelheim.


Givaudan operates in over 100 countries and has its own affiliates in more than 20, employing 4,800 people worldwide.


Givaudan had 1998 sales of 2.04 trillion Swiss francs ($1,279 billion) and 1.07 trillion in the first half of 1999.


The operating profit was 263 million francs for 1998, with 187 million in the first half of this year. EBITDA was 390 million and 247 million for margins of 19 and 23 percent. Its closest rival is U.S.-based International Flavors & Fragrances Inc.