Rivals to Merge Agrochemical Units

In a move that could tempt rivals to follow suit, Swiss pharmaceutical company Novartis and its British-Swedish rival AstraZeneca said Thursday that they would spin off and merge their agricultural-chemical units.

Analysts have been forecasting consolidation of the $30-billion-a-year agrochemical industry for weeks. Prices and profits have come under pressure due partly to the Asian economic slump and falling crop prices. Rising controversy over genetically modified seeds and foods has prompted worries about the industry’s future.

Thursday’s deal will allow for major cost-cutting. The companies plan to eliminate approximately 3,000 jobs worldwide over three years, or one-eighth of the 23,500 people who work for the two agricultural units.

Novartis said the new firm, to be called Syngenta and based in Basel, Switzerland, will be the world’s leading manufacturer in crop protection and No. 3 in seeds, with combined annual sales of $7.9 billion.

Thursday’s deal will leave the parent companies with slimmer, more focused pharmaceutical operations after divesting their cyclical agriculture businesses.

The deal also will free the parent groups of controversy over genetically engineered foods, which are increasingly controversial in Europe and Asia. Some American farmers have reportedly been hesitant to buy seeds that are genetically altered to be resistant to pests for fear of export difficulties.

The deal will initially cost Syngenta $850 million in restructuring costs and severance payments, but Novartis said it will also create pretax savings of around $525 million annually for three years.

Denise Anderson, an analyst at Bank Sarasin in Zurich, said the deal might help start a chain reaction.

U.S. companies Monsanto Co. and American Home Products Corp. are among those toying with divestments, analysts said.

Novartis will own 61% of Syngenta and AstraZeneca the remaining 39%.