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BRAZIL REVAMPS CHEMICAL SECTOR LATIN AMERICA: Petrobras increases Braskem stake, forms another large chemical player Grubisich
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RAZIL’S STATE oil company, Petrobras, is re-
shaping the country’s petrochemical industry with two deals. The company is swapping some of its chemical assets in exchange for an additional 18% equity stake in Brazil’s largest private chemical company, Braskem. It is also forming a new chemical company with Brazilian industrial group Unipar. Under the first deal, Braskem will get full control of Copesul, a petrochemical complex in the southern state of Rio Grande do Sul, by acquiring Petrobras’ 37.3% share. Braskem will also obtain Petrobras’ 40.0% stake in polyethylene maker Ipiranga Petroquímica. Braskem will assume full control of Petroquímica Paulínia, which is building a polypropylene plant in São Paulo, by acquiring Petrobras’ 40% stake. The chemical company could also acquire Petrobras’ low-density polyethylene maker Petroquímica Triunfo, if Petro-
BRISTOL-MYERS SQUIBB CUTS BACK RESTRUCTURING: Drug major follows
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RISTOL-MYERS SQUIBB has embarked on a
$1.5 billion cost-cutting program. The company will lay off 10% of its employees—roughly 4,350 people—and shed more than half of its 27 manufacturing facilities by 2010. In announcing the cutbacks, CEO James M. Cornelius says they are necessary because BMS is careening toward a “patent cliff” in 2012, when generic competition will emerge for the blood thinner Plavix. In the second quarter of this year, the drug represented one-quarter of BMS’s sales of $4.9 billion. “We don’t have a real answer how to offset or mitigate that cliff,” Cornelius told investors last week during an update of the firm’s ongoing strategy review. “Part of this strategic review, if not every part of it, is targeted longer term on mitigating the size of the cliff and accelerating the rebound from that cliff,” he said. B RISTOL-MY ERS SQUIBB
Bristol-Myers Squibb expects to save $400 million through manufacturing cutbacks.
Pfizer, others in shedding production plants
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bras exercises an option triggering the deal. In return for these assets, Petrobras will increase its stake in Braskem from 6.8% to 25.0%. In the second deal, Petrobras is forming a chemical company with Unipar, the company that controls Petroquímica União, a petrochemical complex in São Paulo. The new company, Companhia Petroquímica do Sudeste, will be owned 60% by Unipar and 40% by Petrobras. The new company will pool approximately $3 billion in assets owned by Petrobras and Unipar. It will control Petroquímica União and Rio Polímeros, a new petrochemical complex in the state of Rio de Janeiro. It will include Brazil’s largest polypropylene maker, Suzano Petroquímica, and polyethylene maker Polietilenos União. Braskem says its acquisition of Petrobras assets is a big step toward its goal of becoming a major petrochemical company. “The implementation of this agreement will enable Braskem to accelerate its strategic goal to become one of the 10 leading global petrochemical players,” says CEO José Carlos Grubisich. Tereza Mello, an equity analyst for Citigroup, views the transaction as positive for Braskem. In a recent report to clients, she wrote that Braskem faces risks to earnings growth such as the strength of Brazil’s currency and the potential for a downturn in the business cycle. But she said the company will benefit from synergies created by the acquisition.—ALEX TULLO
Reducing the size of BMS’s manufacturing network will account for $400 million of the planned savings. The company has already announced plans to shutter sites in Mayagüez, P.R.; Barcelona, Spain; and Colón, Panama. BMS has formed a team to evaluate divesting or shuttering other sites. At the same time, the company will continue to use third-party suppliers for back-up production of newer drugs and “aggressively outsource manufacturing” of mature products, says Lamberto Andreotti, chief operating officer of its worldwide pharmaceuticals business. BMS is the latest among the big pharma companies to overhaul its manufacturing strategy. Pfizer, since its acquisition of Pharmacia in 2003, has embarked on an extensive manufacturing restructuring to shrink its number of production sites to about 48 from 93. Pfizer executives revealed at a recent investor conference in Hong Kong that the company now plans to double the amount of manufacturing it outsources to 30%, with much of that business likely headed to Asia. “I think the model is going to change significantly over the next period as to what parts of our business remain core and to what parts we are linked on the outside,” Martin Mackay, president of Pfizer’s global R&D operations, tells investors. Meanwhile, AstraZeneca said this past summer that it would phase out in-house manufacturing altogether, and Merck & Co. is in the midst of cutting about 20% of its production sites.—LISA JARVIS
D EC E M BE R 10, 20 07
