Traders bet Novartis CEO will bail out of its $14B Roche stake

Should Novartis sell off its Roche stock, and soon? That's the question Bloomberg poses, now that Roche's ($RHHBY) voting shares are selling at a big discount to its nonvoting stock. With Novartis ($NVS) weighing all its operations for sale, spinoff, joint venture--what have you--the bet is that CEO Joe Jimenez will liquidate the Roche shares, too.

Novartis CEO Joseph Jimenez

And that bet is weighing on Roche stock. Traders figure Roche's crosstown rival will sell its $14 billion worth of voting shares, which would drive the price down. So, traders are selling, undercutting the shares--which in turn makes it more likely that Novartis will bow out, to reap its profits while it can. The result? The spread between Roche's voting and nonvoting shares is the widest it's been since 1989, Bloomberg says.

And there's another wrinkle here, related to Novartis' strategic review. Jimenez has said he wants the Swiss drugmaker's various businesses to be leaders in their respective markets. That might mean building up a unit via acquisition or joint venture. Freeing up cash by bowing out of Roche could help finance those moves.

Since former CEO Daniel Vasella bought up the stock years ago, aiming for a merger that never came to pass, time and again there's been talk of a Novartis-Roche combo. Indeed, a Novartis board member floated the idea earlier this year. But to hear Jimenez tell it, Novartis isn't interested in buying--nor is Roche interested in selling.

So, if Novartis' 33% share of the voting class isn't a beachhead for a buyout, then what's the point? As Barclays analyst Michael Leuchten tells Bloomberg, "This stake doesn't do anything for them."

Or for shareholders. And that's exactly the measure Jimenez & Co. are applying to the various Novartis units under review. Analysts wonder whether Jimenez can make the case for hanging onto the shares. "There's definitely pressure on him to do something," Leuchten said.

He's not the only one. "It feels like Novartis wants to get rid of this," Louis Capital Markets analyst Ben Kelly tells Bloomberg, "especially at current levels. Novartis is coming under pressure from shareholders to get value out of this."

- read the Bloomberg story

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