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Actelion, Syngenta takeovers set to shake up Swiss SMI index

Stock MarketsJan 31, 2017 08:30AM ET
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© Reuters. The company's logo is seen at the headquarters of Swiss biotech company Actelion in Allschwil

By Rupert Pretterklieber

ZURICH (Reuters) - The looming foreign takeovers of biotech group Actelion and agrichemicals firm Syngenta look set to trigger the biggest shake-up in the Swiss blue-chip SMI index (SSMI) in years just as passive investing makes membership increasingly important.

Analysts say specialty chemicals group Lonza (S:LONN) may be set to join the Swiss club of the 20 best capitalized and most liquid shares, whose ranks could be thinned even further by the time that the next review takes place in June, analysts say.

"It is pretty clear that under the current selection list by the Swiss exchange, Lonza could be taken into the SMI," said Thomas Kuehne, fund manager at Liechtensteinische Landesbank.

He noted Lonza's market capitalization of around 10 billion Swiss francs ($10.06 billion), which could increase thanks to its $5.5 billion acquisition of U.S. group Capsugel.

Lonza is now ranked 21st by market capitalization. SMI components have a combined market value above 1 trillion francs.

Construction chemicals specialist Sika (S:SIK) and hearing aid maker Sonova (S:SOON) are also in the hunt for an SMI spot after boosting growth with acquisitions.

"Sika is in second place" after Lonza, said Eric Chassot, portfolio manager at Banque Cantonale Vaudoise, while Kuehne saw them battling for that role.

"Sonova has a bit more trading volume, while Sika has a higher free float market capitalization," he said.

Joining the SMI is more than just a matter of prestige.

Exchange-traded funds that build portfolios mirroring the composition of stock indices -- thus cutting costs for investors -- have seen a massive boost in popularity, increasing the importance of belonging to a high-profile index.

U.S. healthcare giant Johnson & Johnson (N:JNJ) plans to buy Actelion (S:ATLN) in a $30 billion all-cash deal while state-owned Chinese firm ChemChina has agreed a $43 billion offer for Syngenta (S:SYNN).

The SIX Swiss Exchange will decide in June on any modifications that would then take effect in September after Eurex derivatives contracts expire. But out-of-schedule changes are also possible in the wake of unusual events such as mergers or new listings.

CHANGING FACE OF INDEX

Market experts said the new share set to be created later this year by the spinoff of Credit Suisse's (S:CSGN) Swiss banking unit had an outside chance of an SMI spot.

Chassot said this hinged on details of the flotation, which Credit Suisse has said could list 20 to 30 percent of the unit. Kuehne thought the placement would be too small to heave the stock into the SMI.

The SIX Exchange said having two shares from the same group in the SMI was not ruled out.

In any event, more than two slots in the SMI may open up this year for the first time since 2009.

Shares in private bank Julius Baer (S:BAER) and insurer Swiss Life (S:SLHN) are on the brink of dropping out of the index after Baer shares dipped to 21st on the volume criterion and Swiss Life's market value slipped to 23rd.

"We don't speculate about which share will join or drop out" of an index, said Serkan Batir of market leader BlackRock. "We will await the official announcement from the exchange and then see what we need to do."

In many years there are no or only one change to the SMI, only half of whose constituents were among the founding members of 1988 and often with a new corporate name.

Actelion, Syngenta takeovers set to shake up Swiss SMI index
 

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