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Executive Summary

UPJOHN FINISHES POLYMER CHEMICAL BUSINESS: SALE TO DOW will provide "a favorable contribution to cash flow," the company announced in a May 2 press release. "The resources that will be made available as a result of this sale will be of significant benefit to the company when employed in our other businesses," Upjohn chairman and CEO R. T. Parfet said. The price Dow is paying was not disclosed. Upjohn's decision to sell its non-pharmaceutical chemicals business is consistent with a growing trend among companies in the health care field to divest the non-health care components of their operations. Chemical operations have been a drag on Upjohn for the past three years. The chemical segment of Upjohn's business has not been profitable since 1981 when it generated just $4 mil. in operating earnings. In 1984 chemicals accounted for $325 mil. or roughly 15% of corporate volume, but showed an operating loss of $9 mil. Polymer chemicals made up 88.4% or $287.4 mil. of total 1984 chemical sales. While there has been speculation over the past two years that Upjohn would divest either all or part of its chemical business because of its drag on earnings, Upjohn may have chosen to wait until the business began to turn the corner toward profitability. To analysts, Upjohn has said it expects the chemical business to avoid a loss in 1985. During the first quarter, Upjohn's chemical segment sales were up 10%, but carried an operating loss of approximately $3 mil. due to "high foreign market costs and adverse currency impacts." The divestiture will also reduce the pressure on Upjohn's earnings if the business does not materialize. During the first quarter, Upjohn reported a 20% decline in net income.

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