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* Christoph Franz to be elected at March 4 annual meeting
* Franz has been Roche board member since 2011
* Departure comes as Lufthansa overhauls strategy (Adds details on Lufthansa candidates, updates shares)
By Caroline Copley and Marilyn Gerlach
ZURICH/FRANKFURT Sept 16 (Reuters) - Deutsche Lufthansa Chief Executive Christoph Franz is leaving the airline in the middle of a crucial strategic overhaul to join Swiss drugmaker Roche as chairman of its board.
The move is a coup for Roche, the world's biggest maker of cancer drugs. A central challenge for Franz will be to help the company branch out beyond its core cancer expertise, which could see it opening its war chest to boost its portfolio with mergers and acquisitions.
However it comes in the middle of a complex restructuring programme at German flag carrier Lufthansa to try to cope with rising fuel costs and low-cost competition. The overhaul aims to quadruple the carrier's operating profit to 2.3 billion euros by 2015 by cutting jobs, improving purchasing and merging its European short haul business with discount unit Germanwings.
Roche has picked Franz to succeed Franz Humer as chairman. He will stand for election at the company's annual shareholder meeting on March 4, the drugmaker said on Monday.
The 53-year-old German will stand down from Lufthansa when his term expires at the end of May, the airline said in a two-sentence statement.
"The departure of its CEO will be a huge blow for the airline. Franz has been the mastermind behind the restructuring and the renovation of Europe's largest airline group," said Equinet analyst Jochen Rothenbacher.
The announced departure gives Franz eight months to press ahead with the restructuring programme.
Reports suggested Lufthansa would pick an internal candidate to replace him rather than bringing in an outsider, with the favourite candidates all being long-serving managers.
However Franz said on Monday that the airline would not rule out the possibility of looking at external candidates when searching for his successor.
Shares in Lufthansa were trading up 0.8 percent 14.06 euros by 1057 GMT, underperforming Germany's blue-chip DAX index , which was up 1.2 percent. Roche shares were trading 0.6 percent higher at 238.3 Swiss francs, in line with the European healthcare sector index.
Another of Franz's toughest challenges at Roche may be negotiating with rival Novartis over the possible repurchase of Novartis's stake in the company, analysts believe.
Novartis has also just appointed a new chairman and the changing of the guard at Switzerland's two biggest drugmakers has fuelled talk that Novartis may finally sell its multi-billion-dollar stake in Roche.
The new chairman, although in a non-executive role, will also have to navigate local politics as Swiss lawmakers hammer out a new corporate tax law, and find his way in a global industry in which some of Roche's top-selling medicines are expected to face competition from cheaper copies from 2016.
"Roche is getting a chairman with outstanding personal qualities and an impressive record as head of a major global company," said Humer, who said he would not stand for re-election.
"I am sure that his extensive experience, exceptional global network and strong links to Switzerland will be great assets."
Analyst Fabian Wenner at brokerage Kepler Cheuvreux said Franz fitted the demands of Roche's family owners by being a German speaker with the right cultural connections, but there would be questions over his depth of knowledge of the drugs industry.
The married father-of-five lives in Zurich, giving him the Swiss local knowledge and business and political connections deemed crucial for the Roche chairmanship.
Since he became Lufthansa CEO in January 2011, Franz has clashed with labour unions several times. In May, his management agreed an inflation-busting pay settlement for 33,000 of its 117,000 employees after the second labour strike in a month threatened to drive customers to rival carriers.
Before becoming head of Lufthansa, Franz had been appointed CEO of Swiss International Air lines by the German group after it purchased the ailing carrier, and was responsible for leading its recovery programme.
The Hoffman-Oeri family, descendents of Roche's founder Fritz Hoffman-La Roche, hold 50.01 percent of the company's shares and have a key say on who is chairman.
German newspaper Die Welt cited industry sources as saying Carsten Spohr, the 46-year-old head of Lufthansa's passenger airlines business and Lufthansa Cargo CEO Karl Ulrich Garnadt were candidates to become the carrier's new chief executive.
Sueddeutsche Zeitung said Harry Hohmeister - in charge of Lufthansa carriers Swiss, Austrian and Brussels Airlines - was also in the frame. (Additional reporting by Silke Koltrowitz in Zurich, Ben Hirschler in London and Maria Sheahan in Frankfurt; Editing by Pravin Char)