Novartis ($NVS) is getting closer to unloading its $14 billion stake in crosstown rival Roche ($RHHBY). According to a report this week in the Zurich newspaper Handelszeitung, big investors have been shopping the sale, and bankers could assemble enough buyers within a few weeks.
Novartis this spring suggested that it planned to cash out its Roche stake to help fund M&A. It’s not necessarily expecting a premium price, CEO Joe Jimenez said in May, which should make the shares easier to move.
The idea is to transfer the Roche shares in a block. Novartis’ stake amounts to one-third of the company--and an even larger share of Roche’s floating stock, what with the Roche’s large family ownership. One of Handelszeitung’s investment banking sources estimated the current liquidity in Roche shares at 1 billion Swiss francs, which is a fraction of the value of Novartis’ shares.
Handelszeitung sources said Novartis might line up its buyers and then trigger the sale in advance of a planned acquisition. The Swiss drugmaker has been earning handsome dividends on its Roche shares, at $429 million in 2015 and $473 million the previous year.
Using the stake sale to fund a deal “is distinctly possible” for Novartis, Bernstein analyst Tim Anderson said in April when the sale news broke. The company “is in a time of need, having had setbacks with both Alcon and Entresto, and investor sentiment is languishing,” the analyst said.
Earlier this year, dragged down by Alcon sales and stymied by the slow launch of its would-be heart failure blockbuster Entresto, Novartis restructured the eye care unit and brought in former Hospira chief F. Michael Ball to run it. It also rolled out a cost-cutting plan that would centralize some R&D functions and streamline manufacturing.
A few months later, pharma chief David Epstein left as Novartis split its prescription drugs business in two. One division now focuses on oncology--including the cancer portfolio the company acquired from GlaxoSmithKline ($GSK) last year--and the other on the rest of the company’s branded portfolio. The company is now working to get Entresto’s sales on track and launching biosimilars through its Sandoz unit.
Novartis built up its Roche stake between 2001 and 2003 under CEO Daniel Vasella. For years, Vasella refused to consider selling the shares, and speculation that Novartis might try a takeover occasionally surfaced. After Vasella’s departure, the sale question arose again; Joerg Reinhardt, who replaced him as chairman in 2015, promised to review all of Novartis’ assets for potential sale.
Now, major investors have been asked to submit information on the volume of shares they’d like to buy and the prices they’d pay. Investment bankers running the sale would then evaluate the offers and allocate the shares, the newspaper says. Roche might have a say in the choice, too; Reuters reported in April that Novartis wanted to assemble institutional buyers to ensure that they’d be acceptable to its fellow Swiss drugmaker.
Novartis has considered a few other sale options in the past, including handing out the Roche shares as a dividend to its own shareholders. Novartis also weighed swapping its shares back to Roche, but Roche has repeatedly indicated that it’s not interested.
Should Novartis tap its sale proceeds to make a deal, don’t expect a megamerger. The company has repeatedly said it’s in the market for smaller buys that would augment its therapeutic specialties. Even a deal the size of the Roche sale, at $14 billion or so, wouldn’t be a transformative deal, Anderson pointed out: “Rather, it would be a mid-sized bolt-on, but one that investors might be receptive to, given the current state of the business.”