Orion preparing a plan to demerge the Group into two separate listed companies

 

The new companies would be listed on the Helsinki Stock Exchange in the summer of 2006 after the completion of the demerger. The new Orion Corporation would concentrate on pharmaceuticals and diagnostic tests. Oriola-KD Corporation would be engaged in pharmaceutical wholesale and marketing of healthcare products. An extraordinary shareholders' meeting is planned to convene on 19 December 2005 to decide upon the matter.

 

In the demerger, the shareholders of Orion Corporation would receive shares in the two new companies in a proportion equal to their holdings in current Orion Corporation, without payment. No actions are required from the shareholders for the implementation of the procedure. The demerger would have no direct impact on the current business operations of the Orion Group, nor on customer relationships or employment contracts of the personnel. After the demerger, collaboration would continue between Orion Corporation and Oriola-KD Corporation in Finland, based on a distribution contract to be agreed for about 5 years.

 

All the businesses of the Orion Group have been under constant and goal-oriented development. Their financial performance is on a solid basis, and the new companies would have strong balance sheets. To both companies the demerger would mean a possibility to implement their focused strategies independently, and each company would be better positioned to react flexibly to changes in their operational environments.  

 

Preliminarily, an extraordinary shareholders' meeting is planned to convene on 19 December 2005 to decide upon the demerger. The Demerger Plan is intended to be published on 8 November 2005, in association with the disclosure of the Interim Report 1-9/2005 of the Orion Group. If the extraordinary shareholders' meeting approves the proposal by the Board of Directors, the demerger process would be aimed to be completed by the end of June 2006, and the two new companies would be listed on the Helsinki Stock Exchange as of the beginning of July 2006.   

 

The new "Orion Corporation" resulting from the demerger and adopting the corporate name of the Orion Group's current parent company, would consist of the Orion Pharma and Orion Diagnostica business divisions in the current Orion Group. This company would concentrate on the research and development, manufacture and marketing of pharmaceuticals and diagnostic tests. The components in "Oriola-KD Corporation" would be Oriola Oy and Kronans Droghandel AB, which constitute the Wholesale and Distribution division of the current Orion Group.

 

According to the preliminary plan, the boards of directors of the new companies would be elected by the Annual General Meeting of Orion Corporation in the spring of 2006. Furthermore, the intention is to appoint Mr. Jukka Viinanen to serve as President of the new Orion Corporation and Mr. Eero Hautaniemi as President of Oriola-KD Corporation. Mr. Hautaniemi will start on 2 January 2006 as President of the Wholesale and Distribution Division of the Orion Group. A separate stock exchange release about the appointment is issued in connection with this release.  

 

In accordance with the terms of the Stock Option Plan 2001 of Orion Corporation, the decision to demerge would affect the stock option rights in such a way that, by decision of the Board of Directors, the stock option holders would be granted a right to subscribe for shares during a period ending before the execution of the demerger. The purpose of the Board is to conditionally re-define the timelines at the same time as it approves the Demerger Plan.

 

 

 

 

The goal for the restructuring is to increase shareholder value by means of clarified business structures and increased operational transparency. By the segregation of the Wholesale and Distribution division into an independent company, two new companies with strong balance sheets and with clear and focused commitment to their specialised business sectors would be created, and each of the two companies would develop operations from their own strategic starting points.

 

With the current corporate structure, the determination of the value of the Orion Corporation shares is challenged by the lack of comparable peers. The value of the shares in the new Orion Corporation, which would mainly concentrate on the R&D, manufacture and marketing of pharmaceuticals, would be easier to assess, and the strategy of the company as a more focused and research-oriented pharmaceuticals company would be enhanced.

 

 

 

One of the most important goals of Oriola-KD would be to be the preferred partner for its principals and customers both as a pharmaceutical distributor and a marketer of healthcare products in the geographic operational area covering the Baltic Rim. With a stand-alone status and with an independent ownership base, the company would adopt operational patterns most ideal for a business concentrating on pharmaceutical wholesale and healthcare equipment marketing, and a governance and leadership pattern with full management focus on the further development of services generating additional value and the utilisation of growth opportunities in the healthcare business sectors. Stable and regular dividend flows would be aimed by the company for its shareholders.   

 

As an independent listed company, Oriola-KD would also have more operational freedom and better possibilities for further development than in its current position as a member of the Orion Group. With a strong balance sheet and operational autonomy it could flexibly participate in and react to structural changes in its business environment and further develop its own operational structures. It could also actively and unrestrictedly participate in the sector's re-structurings.

  

In pharmaceutical distribution, Finland and Sweden have adopted a so-called single-channel distribution pattern in which the pharmaceutical companies entrust the distribution of their products to one single wholesaler. In this pattern, the wholesalers are competing with each other for the distribution agreements. Additionally, the Swedish retail pharmacies are run by a state-owned monopoly, Apoteket AB. Pharmacies in Finland are private enterprises owned and run by private pharmacists, except the pharmacy chains owned by the Helsinki and Kuopio universities.

 

The structures of pharmaceutical wholesales and the legislation concerning the retail of pharmaceutical products are subject to anticipated changes in several countries, which, if and when implemented, will mean major changes in the operational environment for Orion's wholesale business as well. It is already now well prepared for rapid reaction. As an independent company Oriola-KD would have more freedom and more versatile possibilities to develop its own structure and business concepts.

 

 

 

The annual net sales of the Orion Group are about EUR 2 billion. The consolidated operating profit for 2004 was about EUR 132 million. Orion Pharma and Orion Diagnostica generated about EUR 555 million in combined net sales and about 114 million in operating profit. Together they employ about 2,960 persons. The Wholesale and Distribution division generated about EUR 1,407 million in combined net sales and about EUR 27 million in operating profit. The division's total personnel is about 1,550 persons.  

 

The strategy of Orion Pharma highlights the goals of growing profitably and managing the risks related to the pharmaceutical research aiming at new proprietary products. The product portfolio consists of proprietary products, generic and in-licensed preparations, animal health and the manufacture of active pharmaceutical ingredients. The best growth potential is in the proprietary products. These products already generate over 40% of Orion Pharma's total net sales. Partnerships and networking in marketing and research are elementary components in the strategy.

 

Orion Diagnostica is specialising in rapid, easy-to-use diagnostic tests with high degree of innovation.
The leading product of the company is the QuikRead family of point-of-care tests, used for the identification of infections, among others. The division is very profitable.

 

The Wholesale and Distribution division is composed of two pharmaceutical wholesalers, Oriola, which has operations in Finland and the Baltic countries, and KD, based in Sweden. Moreover, marketing of healthcare equipment and supplies is an essential and a very profitable part of Oriola's business. Oriola has a strong market position in this sector in Finland and the Baltic states, and is increasingly present in Sweden and Denmark too. In these countries, products of over 2,000 manufacturers are marketed by Oriola to hospitals and other healthcare institutions, research institutes, laboratories, dentist and veterinarians. Oriola's market share of pharmaceutical wholesale in Finland is about 40%, while KD's market share in Sweden is 48%. The overall profitability of the Wholesale and Distribution division is on a good level.

 

The Orion Group has been engaged in the pharmaceutical wholesale business since 1948, the year when Oriola Oy was established. In 2002, Orion acquired the majority ownership in the Swedish KD, (Kronans Droghandel AB), founded in 1907, whereby Orion's stake in the company rose to 69.3 per cent. Both companies are deeply integrated operators in the healthcare infrastructure in Finland and Sweden, respectively.

 

 

 

 

 

 

Orion Corporation

 

 

 

Jukka Viinanen                                        Olli Huotari

President and CEO                                  General Counsel

 

 

 

 

Jukka Viinanen, President and CEO,  phone +358 10 429 3710, gsm +358 50 429 3710

Olli Huotari, General Counsel, phone +358 10 429 3054, gsm +358 50 429 3054

Heikki Vuonamo, Corporate VP, Communications, phone +358 10 429 4967, gsm +358 50 429 4967

 

 

 

 

A press conference will be held for the media and company analysts today, Monday, 10 October 2005 starting at 15.00 pm in the Union Square auditorium of Restaurant Bank, Unioninkatu 22, Helsinki.

The language of the presentation is Finnish. The presentation material will be available on www.orion/investors as of the start of the press conference.

 

 

 

A teleconference in English for institutional investors and analysts will start today, Monday, 10 October 2005 starting at 17.30 pm Finnish time (15.30 GMT). The access information is provided on www.orion/investors.

 

 

 

 

Helsinki Stock Exchange

Media

 

Orion Corporation

Corporate Administration

Orionintie 1A, 02200 Espoo

Homepage: www.orion.fi