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Swiss Activist Questions Novartis's Revamp Plan, Adding Pressure


By Goran Mijuk



ZURICH -(Dow Jones)- Shareholder activist Actares Monday voiced doubts about Novartis AG's (NVS) planned restructuring, which involves more than 1,000 job cuts in Switzerland, adding pressure on the pharmaceuticals giant after Swiss unions and local politicians questioned the plan.

Although relatively small as far as its controlled funds are concerned, Actares, is one of Switzerland's most vocal investor groups, having been instrumental in pushing for corporate change in the country.

It is questioning Novartis's revamp and wants more details about the plan. Actares said its position has been supported by Arpip, the association of workers' representatives in Swiss pension funds.

"We want to have more clarity about the restructuring," Actares president Roby Tschopp told Dow Jones Newswires. "Currently, it isn't clear why Novartis is trying to cut so many staff in Switzerland, as Novartis itself has been relatively vague what actually triggered the need for the restructuring."

Tschopp said Actares wants to initially enter talks with Novartis and that other steps aren't yet planned. Actares, often together with Swiss activist Ethos Foundation, has in the past successfully lobbied for management or strategy change at companies such as UBS AG (UBS).

Novartis in late October said it would cut around 2,000 staff worldwide, including 1,100 job cuts in Switzerland, where Novartis is considering closing an over-the-counter drug factory in Nyon in Western Switzerland. It said the tough economic and regulatory environment along with the Swiss franc's strength have made such steps necessary.

The job cuts, and especially the planned factory closure in Nyon, led to widespread protests and a one-day strike at the plant in Western Switzerland, where around 300 people are set to lose their jobs. Pressure from workers, unions and politicians prompted Novarits last week to say it will reconsider the planned factory closure but, but gave no guarantees to keep the site running.

Chief Executive Joe Jimenez--who has been previously criticized by Swiss unions for his alleged lack of cooperation-- met with plant representatives Friday, afterwards saying he would consider allowing the plant to continue operating provided that business proposals made economic and financial sense. The CEO, an American, underscored the point that Novartis must save funds to boost its research.

"I would like to point out that Novartis is facing a challenging future and therefore further cost reductions are necessary if the company wanted to keep its R&D spending strong," Jimenez said. Novartis is one of the biggest spenders in the industry on research and development, and it has one of the sector's strongest drug pipelines. Jimenez has repeatedly said he wants to keep R&D spending high to allow for drug innovation.

Novartis's restructuring is scheduled to be completed over the next three to five years. Analysts say the revamp may be prolonged or cost more than envisaged but the that the envisioned annual savings of around $200 million are necessary.

Many pharmaceutical companies, including cross-town rival Roche Holding AG (ROG.VX), have launched major job cut rounds recently to offset pressure on the industry that is smarting from global drug price cuts and stricter regulatory oversight.

Novartis's restructuring ran into resistance in Switzerland earlier this month amid strike warnings from unions. The strike threats come as public ire over Novartis's layoff plans coincide with broader concerns about job security in Switzerland. There are fears that, because of the strong Swiss franc, some 40,000 jobs could be cut in the country next year.

-By Goran Mijuk, Dow Jones Newswires, +41 43 443 80 47;


(END) Dow Jones Newswires

November 21, 2011 06:16 ET (11:16 GMT)

Copyright (c) 2011 Dow Jones & Company, Inc.

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