MOODY'S RATES ENTITIES OF SOON-TO-BE FORMED NOVARTIS; CIBA-GEIGY AND SANDOZ AT Aaa
New York, 12-10-96 -- Moody's Investors Service upgraded the long-term debt ratings of Ciba-Geigy Ltd. to Aaa from Aa3 and assigned Aaa ratings to the long-term debt of Sandoz Ltd. The rating actions anticipate that the upcoming merger of the two companies into a new entity to be named Novartis will be finalized substantially as currently proposed. Moody's ratings recognize the outstanding financial strength of the new enterprise as well as the stronger and formidable business positions in pharmaceuticals and agrochemicals to be created by the merger of the two companies. These rating actions conclude a review begun March 7, 1996 when plans of the merger were announced. The Prime-1 ratings for commercial paper of the supported entities of both Ciba-Geigy Ltd. and Sandoz Ltd. were confirmed at that time.
Ratings upgraded are:
Ciba-Geigy Corporation -- guaranteed Eurodebentures, Euronotes, Euro medium-term notes, and Eurobonds to Aaa from Aa3.
Ciba-Geigy plc -- guaranteed Euro medium-term notes to Aaa from Aa3.
Ciba-Geigy International Nederland B.V. -- guaranteed Euro medium-term notes to Aaa from Aa3.
Gerber Products Corporation -- debentures and industrial revenue bonds to Aa1 from A1.
Chiron Corporation -- convertible subordinated debentures to Baa2 from Ba1.
Cetus Corporation -- convertible subordinated Eurobonds to Baa2 from Ba1.
Ratings assigned are:
Sandoz Capital BVI Ltd. -- guaranteed debentures at Aaa.
Sandoz Overseas Finance Ltd. -- guaranteed debentures and medium-term notes at Aaa.
Sandoz Corporation -- guaranteed medium-term notes and debentures at Aaa.
Moody's noted that the merger of Sandoz and Ciba-Geigy will be effected via an exchange of shares of each company for shares in Novartis. Given that each company is already very strong financially and the merger will not involve any incremental debt, Novartis will start its life with augmented financial prowess. The merger also creates a powerful new force in the pharmaceutical industry, one that will rank second among the top global companies. In addition, Novartis will rank first in agrochemicals with nearly twice the sales of the second place company. The rating agency believes that the expanded business presence of Novartis, promising new products in both pharmaceuticals and its agribusiness, and merger infrastructure savings should result in significantly enhanced profitability in the years ahead. Consequently, cash generation is expected to be exceptional, which will provide Novartis with enviable financial flexibility. Moody's expects Novartis to maintain a financial profile consistent with a Aaa rating.
Moody's observed that the composite pharmaceutical business of Sandoz and Ciba-Geigy has not matched the progress of the top industry competitors in recent years, but an improvement in performance appears likely. The two companies now have a stronger pipeline of compounds in advanced development. The market penetration of these compounds should be accelerated by the broader geographical reach of Novartis and thereby lead to a step up in the pace of overall sales.
Moody's views the spin-off of Ciba-Geigy's specialty chemicals operation, planned for 1997, as a positive action which will eliminate a less profitable business and reduce cyclicality. Nonetheless, Novartis still faces cyclical risks in its agribusiness, but the company's robust financial strength should enable this business to weather the stresses of economic downturns.
The formation of Novartis will be effected through a procedure known as a reverse dual annexation merger under Swiss law. The direct obligations of Sandoz Ltd. and Ciba-Geigy Ltd. will automatically become obligations of Novartis. The Aa1 debt rating for Gerber Products, one gradation lower than its new parent, reflects the absence of an explicit guarantee or legal assumption by Novartis. The upgrade to Baa2 from Ba1 of the subordinated debentures of Chiron Corporation (49.9% owned by Ciba-Geigy) and the subordinated Eurobonds of Cetus Corporation, which were assumed by Chiron, recognizes the improved financial position of Chiron's major shareholder while also taking into account that there is no formal support for these issues.
Headquartered in Basel, Switzerland, Ciba-Geigy is one of the world's leading chemical and pharmaceutical companies. Sandoz Ltd., also based in Basel, is a diversified producer of pharmaceuticals, nutrition products, and agricultural products. The merged entity, Novartis, will be headquartered in Basel.
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