Aventis Sees EUR9.1B Debt Reduction Through Divestments

Dow Jones Newswires 2mar01

STRASBOURG, France -- Aventis SA (AVE) management said Friday it sees debt reduction in the order of EUR9.1 billion from the divestment of Messer Griesheim Gmbh, Aventis Crop Science and Animal Nutrition, as well as proceeds from the sale of shares.

Of the total EUR9.1 billion debt reduction Aventis expects from divestments, EUR5.2 billion stems from its stakes in Messer Griesheim GmbH, Aventis Crop Science and Animal Nutrition, while EUR4.4 billion stems from a pair of exchangeable share bonds, issued prior to the merger of Hoechst AG and Rhone-Poulenc to form Aventis, as well as debt consolidation.

The company said it expects additional unspecified debt of EUR500 million from other activities.

Aventis Chief Financial Officer Patrick Langlois added that zero debt would be possible by 2003 or 2004, but said this wasn't a company goal.

"We're going to use financial means and our balance sheet in investments to accelerate top-line growth of the pharma business," he said at the company's earnings press conference.

While the company hasn't yet decided whether to divest its crop science unit through an initial public offering or direct sale, Aventis based its related debt reduction estimates on the current market valuation for Syngenta AG (SYT) and Monsanto Co. (MON), two of world's largest crop science companies, Langlois said.

-By Carey Sargent; Dow Jones Newswires; 49-69-297-25500; carey.sargent@dowjones.com

(Corrected 10:41 GMT)

A further EUR4 billion in cash from operations could reduce the group's debt to zero by 2003 or 2004, said Langlois. Last year, Aventis' debt stood at EUR13.1 billion, up from EUR12.3 billion in 1999.

Reducing debt and growing its core pharmaceuticals businesses will help Aventis to close the profitability gap on its industry peers, said Langlois. Its pharmaceuticals division raised the margin on earnings before interest, taxes and amortization last year to 19.4% from 17.6%, but the industry average stands close to 25%.

Aventis is currently negotiating an exit strategy with partner Schering AG (G.SCH) for its crop science business, which it no longer views as core.

Aventis is aiming for 10% annual sales growth from its core businesses, and it plans to grow earnings before interest, tax, depreciation and amortization by 15% a year over the next three years. It also expects to raise the EBITA margin by 2 percentage points a year up to 2003.

"Aventis is not just a synergy story, it's a growth story," said Langlois at the group's annual earnings conference, its second as a unified company, after the merger of Hoechst and Rhone-Poulenc in December 1999.

Its core businesses are drug development, vaccines and therapeutic proteins. Over the next three years, the group is counting on seven drug products driving its growth, said Igor Landau, head of the group's pharmaceuticals business.

These include the cancer drug Taxotere, the anti-thrombosis drug Lovenox, from which it expects peak sales of EUR2 billion, the allergy drug Allegra, also a EUR2 billion blockbuster, and the diabetes drug Lantus, due to be launched in the U.S. during the second quarter of this year and with a peak sales potential of EUR1 billion.

Asked whether he regards Aventis as a mid-sized drugs company after the recent spate of mega-mergers to form industry giants Glaxo SmithKline PLC (GSK) and Pfizer Inc. (PFE), Landau said: "I don't feel there is a competitive gap, the only place there's a difference is in market capitalization, and ours will grow drastically as soon as we improve profitability."

The merger between Hoechst and Rhone-Poulenc to form Aventis did, however, give Aventis the marketing clout to gain recognition in the key U.S. market, said Landau.

"Before Aventis was formed, we were barely in the game," he said.

"Now we are invited to participate in the game."

Landau said he sees no need over the next three years for Aventis to seek another merger partner.

While it does plan to in-license promising drug products, it will concentrate mainly on internal growth.

"To distract ourselves from that course would be a mistake over the next two or three years. In three years, nobody knows, then we have to reassess," he said.

But he added that Aventis is confident its pipeline beyond 2003 is strong enough to maintain its competitiveness in the pharmaceuticals industry.

- - 02/03/01 12-12G

Horst Waesche, Supervisory Board Chairman at Aventis Crop Science, said he couldn't yet give a clear answer on the current state of negotiations with Schering about Aventis' intention to sell its 76% stake.

Schering owns the other 24%, but has a 25.1% blocking minority voting share.

"We're at the beginning of the divestment process, and the situation is both intriguing and challenging," said Waesche.

"We believe that further consolidation will take place in the industry, and that there will be three or four large players at the end."

Aventis is still considering all options, from a trade sale to a public flotation of its stake, but Aventis needs Schering's approval to go ahead with its divestment plans.

Sources have speculated that Schering is driving a hard bargain with Aventis, and is seeking an additional share of Aventis Crop Science in exchange for its approval on an early exit by Aventis.

Schering has said it doesn't want to sell its stake until the industry outlook improves in a few years.

Waesche said the question of Schering getting an additional share in Aventis Crop Science in exchange for its approval hadn't been a topic of discussion in the negotiations.

He also said, "I don't believe that our discussions with Schering will lead to a delay in the divestment process."

Aventis is observing the current consolidation and would consider merging with another company to rival the world leader, he said.

World leader, Syngenta AG, with a 21% market share, currently dominates the agrochemicals industry. Aventis Crop Science is the world's second largest, with approximately 15%, followed by BASF AG (G.BAS) and Monsanto.

"There are two companies with a world market share below 10% that will be considering whether they should use this unique opportunity to their advantage," said Waesche, referring indirectly to Bayer AG (G.BAY) and Dow Chemical Co., who each have market shares below 10%.

Bayer has said in the past that it wouldn't be interested in acquiring all of Aventis Crop Science, but that it would be attracted by one or the other of its products. None of the other companies have so far publicly expressed an interest.

Despite its keenness to divest the business this year, Aventis won't undersell itself, said Waesche.

The market currently values agrochemicals companies at almost seven-times multiple of earnings before interest, tax, depreciation and amortization.

Last year, Aventis Crop Science had earnings before interest, tax and amortization of EUR529 million and expects that to grow this year.

Waesche also said he's expecting a premium to be included in any evaluation of the business for its valuable intellectual property assets.

Company Web site: http://www.aventis.com