Novartis CEO Joe Jimenez has imposed a deadline of the end of the year for the flailing Alcon unit to get on an upward sales trajectory, a move that has led many to think he will unload the unit if it misses the mark. Now a hedged remark by a Novartis exec has flamed the embers of that idea.
At an M&A conference in Zurich on Thursday, General Counsel Felix Ehrat would not rule out a sale of Alcon, Reuters reports. He pointed out that Alcon’s standing as a contacts and surgical instruments maker fits Novartis' ($NVS) criteria of having units that lead in their markets. But when asked if that means Novartis would not sell Alcon, he stepped away from that commitment. “Never say never," Ehrat said.
The idea that Novartis will sell the unit is in the air. Recently, Kepler Cheuvreux analyst David Evans wrote in a note to investors that "Alcon will either be fixed or sold," Reuters points out.
If Novartis would rid itself of the contact and device player, it would mean that Novartis Chairman Joerg Reinhardt will have completely refuted the big diversification drive of his predecessor Daniel Vasella, whose exit the board orchestrated in 2013.
When Reinhardt took over, he immediately embarked on an “asset review” that resulted in Novartis’ major moves the next year to swap assets with GlaxoSmithKline ($GSK) and sell its animal health business to Eli Lilly ($LLY). It traded off its vaccines business to GSK for some oncology assets and struck a joint venture deal for the U.K. drugmaker to take control of its consumer health operations. After that $25 billion worth of transactions, only Alcon remained as a major piece of the Vasella diversification era.
Sales at Alcon have been falling for several years, down 9% to $9.8 billion last year. Those struggles led Jimenez to unveil his turnaround plan for the unit in January. He brought in F. Michael Ball, who had turned around Hospira before its $15 billion sale to Pfizer. The plan also moved Alcon’s ophthalmic business into Novartis’ pharma side. The CEO said that would lighten the unit's load as it embarked on its turnaround, but the move could also be seen as stripping out the more desirable piece of Alcon in case of a sale.
The company said at the time that it expected Alcon to turn in "low single digit growth" in the next year as a result of the changes, but in Q2 sales were down another 2%. So what if the turnaround doesn’t happen?
"We haven't thought what happens if it fails because we believe we can do this,” Jimenez said when he laid out the plan. “If we get to the end of the year (without a return to growth) then we have to ask a harder question."
- read the Reuters story
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