With no big M&A on tap, Novartis presses pause on $12B-plus Roche stake sale: Sonntagszeitung

Novartis HQ cropped

Has Novartis put its plans to unload its Roche stake on hold? The weekly Swiss newspaper Sonntagszeitung says the sale has been “iced,” quoting investment bankers hired to market the shares to institutional investors.

Analysts have said Novartis could reap $12.5 billion to $14 billion for the 33% stake it has owned in crosstown rival Roche since 2001. The company has for years faced questions about selling off the shares, and earlier this year, execs said the time had come.

At the time, Novartis 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.

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Indeed, Sonntagszeitung’s sources say the sale is all lined up and ready to go, but Novartis has yet to pull the trigger. The company’s dealmaking plans are lagging, however, and it might hang onto the Roche shares rather than cashing them in.

Asked for comment on the news, Novartis said it does not comment on market rumors. The Swiss drugmaker reports third-quarter results Tuesday and may discuss the Roche stake then.

Plus, Roche’s Swiss-traded shares are on a downswing, having slid to 230 Swiss francs currently from 256 francs at the beginning of July, a decline of more than 12%.

“The exit from Roche has been shelved,” the newspaper reported Sunday.

Indeed, Roche pays its dividends with its annual meeting in March, and the stake earned $429 million for Novartis last year. That number was $473 million in 2014.

Delaying the sale doesn’t mean Novartis wouldn’t pull the trigger later, and it may want to if the right M&A opportunity comes along.

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.

If Novartis does funnel its sale proceeds into M&A, don’t expect a megamerger. The company has repeatedly said it’s in the market for smaller buys that would augment its therapeutic specialties, such as its burgeoning focus in cancer. Even a deal the size of the Roche sale, at $14 billion or so, wouldn’t be a transformative deal, analysts have pointed out.

Novartis’ own stock hasn’t been performing all that well this year either; as Sonntagszeitung points out, it has lost 2.5 billion off its market cap this year, amid troubles at its eye unit Alcon and a less-than-thrilling launch for its heart failure drug Entresto.

Novartis reorganized Alcon in January, adding ex-Hospira chief F. Michael Ball to run that business. Then, in May, the company rejigged its pharma unit by dividing it in two, splitting off its cancer operations into a new Novartis Oncology unit. Then-pharma chief David Epstein left, with Paul Hudson taking the reins of the pharma business and Bruno Strigini assuming the helm at the new oncology unit

The pharma reorg came less than a month after the news of the stake sale broke. The company “is in a time of need, having had setbacks with both Alcon and Entresto, and investor sentiment is languishing,” Bernstein’s Anderson said at the time.

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