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Why Poulenc May Unload Rorer

Inside Wall Street


At the height of late-'80s takeover frenzy, Rorer Group was among the most sought-after pharmaceutical houses. It was no surprise when, in 1990, French chemical giant Rhone-Poulenc bagged it. Rorer, which makes drugs to fight cardiovascular, respiratory, and infectious diseases, as well as cancer and allergies, became Rhone-Poulenc Rorer (RPR).

But now, whispers are that Rhone-Poulenc may be ready to unload its 68%-stake in its Rorer unit. One investment manager says a company insider told him buyers might be either Rorer's management in a leveraged buyout or another major drug company. Indeed, Rhone-Poulenc said in January that it would sell assets worth $2 billion between 1996 and 1997.

Shares of RPR have been in an upswing since January, rising from 49 to 66. They're worth 90 in a buyout, says the investment pro. RPR's market capitalization is $8.8 billion; its parent's 68% stake in the Rorer unit is worth $5.9 billion, or about $18 per Rhone-Poulenc share.

Parent Rhone-Poulenc's American depositary receipts trade at 25. That means the other operations command $7 a share. "It's clear," says William Young of Donaldson, Lufkin & Jenrette Securities, "that management is under pressure to deliver incremental value."

A Rhone-Poulenc spokesman acknowledges the pressure and says the company is studying all options to enhance shareholder value. But the company, he adds, is committed to the four segments of its business--including Rhone-Poulenc Rorer.BY GENE G. MARCIALReturn to top

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