Schering Cost Cuts Run Deep: Consumer Health Unit In Danger Of Divestiture?
This article was originally published in The Rose Sheet
Executive Summary
Schering-Plough will retain its Consumer Health Care business in the near-term but may choose to sell the unit as it undertakes a broad restructuring plan that includes an unprecedented dividend slash to cut costs
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Schering-Plough will retain its Consumer Health Care business in the near-term but may choose to sell the unit as it undertakes a broad restructuring plan that includes an unprecedented dividend slash to cut costs. "There is good business logic for maintaining the...Consumer Health Care business," the firm states in an 8K filed with the Securities and Exchange Commission Aug. 21. "However, the company will always evaluate good opportunities for accretive or strategic divestitures," the filing adds. During a July 23 second quarter earnings call, CEO Fred Hassan stated the firm would consider selling non-core assets to optimize its products portfolio (1 'The Rose Sheet' July 28, 2003, In Brief). Coppertone sun care could be a candidate. Nevertheless, the appointment of Stanley Barshay in July as chairman of the Consumer unit indicates that Schering may be keeping the business for the long haul (2 (Also see "Schering Taps Former AHP Exec Barshay To Head Consumer Health Care Unit" - HBW Insight, 14 Jul, 2003.), p. 9). Schering's latest sweeping cost savings plan indicates the firm's troubles may be more serious than originally anticipated by Hassan. Most notably, the firm will cut its quarterly dividend from $0.17 to $0.055 per common share. Although Wall Street had been forewarned that drastic cost-cutting measures were going to take place, investors appeared to be particularly taken aback by the almost 70% dividend gash. Schering's records on dividends dating back over 30 years show that there has never been a reduction in the dividend paid to shareholders. Schering claims that its current dividend level is "not realistic" given a downturn in revenues, increased competition and ongoing legal and regulatory issues. Company officials reiterated the negative impact of its flagship allergy drug Claritin going OTC in December 2002 during an Aug. 21 conference call announcing the restructuring. The firm noted it will implement a Voluntary Early Retirement Program immediately, which will result in the reduction of 1,000 employees, among other initiatives. |