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SQUIBB CASHES RITZ FOR MORE THAN $600 MIL.: DIVESTITURE FUNDS COULD GO TOWARD "HEALTH CARE INVESTMENTS"; CHOICES ARE LIMITED BY RESTRUCTURING PROGRAM

Executive Summary

Squibb's cash from its sale of Charles of the Ritz for over $600 mil. could be directed toward "other health care investments," Squibb Chairman Richard Furlaud said in a Nov. 18 press release announcing the divestiture. To be in line with the company's recent restructuring, those investments are likely to be in the pharmaceutical acquisition or licensing area. Commenting on what Squibb might do with the windfall from Charles of the Ritz, Furlaud said that the company "is evaluating various options for the cash proceeds from the sale, when received, including the repurchase of shares of its common stock and other health care investments." The sale of Charles of the Ritz is a major step in Squibb's five year effort to narrow its business focus to Rx and OTC pharmaceuticals. Beginning with Squibb's 1981 divestiture of Life Savers to Nabisco, the company has sold or spun off all its nonpharmaceutical business with the exception of Convatec, Edward Weck & Co. and the Weck Medical Instrument Group, which have been merged into the drug group. Given the company's restructuring effort away from device and diagnostic areas and toward pharmaceuticals, Squibb's choices for reinvestment are relatively limited -- primarily to the drugs and biologicals businesses. Pharmaceutical product licensing could be facilitated by Squibb's recent moves to build specialized groups -- Princeton Pharmaceuticals, which will market Corgard, Corzide, and Pronestyl; Squibb and Sons, which will market the company's other brandname Rx products focusing on Capoten and Capozide; and Squibb Mark, which will sell Rx generics and OTCs. Squibb's recent joint venture moves also indicate possibilities for future investment. In the last three years, Squibb has entered into joint ventures with Connaught covering vaccines, with Novo covering insulin, and with Marsam Pharmaceutical covering injectable generics. An easy health-care investment alternative could be repurchase of its own shares. The Ritz cosmetics and fragrance business, acquired in 1971, generated sales of $432.2 mil., up 8%, in 1985. Based on the group's operating earnings of $50.6 mil., up 9% last year, Yves St. Laurent is paying 12 times operating earnings. Charles of the Ritz sales have grown at a compounded annual growth rate of approximately 8.5% over the past five years, while operating earnings have grown at a 13% compounded annual rate since 1980. The group's product mix is a combination of department and drug store and specialty lines ranging from Bain de Soleil and the Forever Krystle fragrance to the Paris scent and Beaute cosmetics of Yves Saint Laurent. Calling Yves St. Laurent "an excellent partner" for Charles of the Ritz, Squibb Chairman Richard Furlaud noted that the sale "will reunite the Yves St. Laurent cosmetic and fragrance business, currently operated by Charles of the Ritz, with the rest of the Yves St. Laurent business." Squibb had reported in June that it was seeking a buyer for the cosmetics/personal care products business. The closing of the deal, Squibb said, is scheduled "for year end." Furlaud said that the sale will result in a one-time gain for Squibb. However, he added, the company's management "is reviewing the corporation's asset base with a view to further enhancing Squibb's return on assets and profitability in future years and that the results of this review, if approved by the board, might result in charges to income which could offset, in whole or in part, the gain from the sale." Squibb stock closed on Nov. 21 at 111, up 5-3/4 points for the week.

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