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HOFFMANN-LA ROCHE ELIMINATING 50-YEAR-OLD SISTER COMPANY SAPAC

Executive Summary

HOFFMANN-LA ROCHE ELIMINATING 50-YEAR-OLD SISTER COMPANY SAPAC in the first of a three-part overhaul that includes the formation of a pure holding company and the elimination of its current share structure. Sapac has represented the second half of a "twin-share" company stock structure. Hoffmann-La Roche said at an April 24 press conference at its Basle, Switzerland headquarters that it is giving up the Roche/Sapac twin structure because it has "in the past years lost most of its former significance and become an administrative burden" to the $ 5 bil. annual sales company. The changes will "simplify and streamline management procedures . . . remove administrative friction, (which causes rising costs, and reduces operational flexibility)," and bring Roche into conformity with Swiss stock trading practices and pending reforms to the Swiss Company Law, Hoffmann-La Roche said. The three restructuring moves also will add 451.8 mil. Swiss Francs (SFr) to Roche's capital reserves, giving the firm more cash for potential acquisitions. Roche, thwarted in its early 1988 bid for Sterling, is rumored to be still interested in a merger or acquisition, with Syntex said to be the likely candidate. The changes will switch Roche stock from over-the-counter trading to the main Swiss exchange, which could make stock-swap merger activity easier. The restructuring will be voted on by stockholders at the May 31 annual meeting. Under the present structure, each owner of Hoffmann-La Roche voting stock also owns shares in Sapac. Sapac Corporation, Ltd. (headquarters, New Brunswick, Canada) was formed 50 years ago as the original holding company for all of the firm's subsidiaries, patents and trademarks in the Americas, Asia, Australasia, the U.K. and parts of Africa and was designed to create overseas ownership of Roche's international assets in the event of hostilities. Sapac's importance to Roche has decreased over the years as the burden of financial, legal and managerial transactions for international acquisitions shifted to Switzerland. The twin share system will be converted into a new share system under a pure holding company to be created via the transfer of all assets and liabilities from F. Hoffmann-La Roche & Co. Ltd. to a new operational subsidiary. The move will entail renaming the parent firm as Roche Holding Ltd. Sapac will become a subsidiary of the new holding company. Roche said it decided on the concept of a pure holding company in light of the "increasingly negative effects of having an internationally active group working with a parent company combining holding and operational responsibilities." The restructuring will create a simplied stock system which, together with the two previous parts, will bring in the extra SFr 451.8 mil. in capital, according to Hoffmann La Roche. For example, the plan will increase the value of the 16,000 shares currently outstanding from par value SFr 3-1/8 to SFr 100, thereby increasing the total value from SFr 50,000 to SFr 1.6 mil. The company will then issue 784,000 new shares for a combined 800,000 shares. The company also announced preliminary results for 1988 at the April 26 press conference in Switzerland. Hoffmann-La Roche/Sapac revenues rose 12.8% to SFr 8.7 bil. and net income climbed 33.1% to SFr 641.5 mil.
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