Swedes plan two-way split at Procordia: Demerger proposal would put Volvo in the driving seat for non-drugs operation

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STOCKHOLM - The Swedish state and Volvo, the car maker, yesterday unveiled a plan to split the Procordia drugs and foods group into two separate companies, with Volvo becoming the full owner of the non-drugs operations.

But some share analysts were sceptical whether the loss-making car group should fritter its energies on such activities as match-making and frozen foods.

Volvo and the state, the major shareholders of Procordia, said all parties had agreed to a plan to form a drugs and biotechnology company and syphon off the group's food and consumer products into a new firm.

Under the agreement, Volvo would exchange Procordia shares for all the government's shares in the non-drugs division - to be called Branded Consumer Products (BCP) - and make a public offer of the remaining BCP shares.

Full ownership of BCP would bring Volvo a string of brand names including Pripps beer, Ramlosa mineral water, Swedish Match and Felix frozen foods. 'Car makers should concentrate on car making,' said Adrian Waters, an industry analyst at Ludvigsen Associates in London. 'Volvo has a lot of problems to solve, like their co-operation with Renault and their factory productivity.'

However, the deal should bolster Volvo's finances after it reported a record pre-tax loss of 3.31bn Swedish krona ( pounds 307m) for 1992.

'Volvo's financial position is strengthened by the positive cash flow of the consumer products operations,' said Per Westerberg, the Swedish industry minister.

Analysts said Procordia would have a slimmer structure built around its successful Kabi Pharmacia pharmaceutical and healthcare unit. 'It's a deal which opens up the locked ownership structure, which has been a restriction for the company,' said Stefan Wilkholm, an analyst at Svenska Handelsbanken.

'Through this deal, Procordia will be streamlined to a drugs and biotechnology company, which strengthens its opportunities for growth and gives it direct access to the risk capital market,' Mr Westerberg said.

After the deal, Volvo would have only 25 per cent of the votes in drugs-only Procordia - with the option to own up to 35 per cent - against the current 42.8 per cent.

Mr Westerberg said the government would proceed with its plan to sell its holding in Procordia once the divestment had been completed and that the plan would ease privatisation.

Standard and Poor's, the rating agency, said it was reaffirming its A-2 rating of Volvo-backed debt in the light of the move.

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