A block of shares worth billions has now been sold to Roche.
(Photo: Reuters)
Frankfurt The Swiss Novartis Group held a stake in its competitor Roche for around twenty years: now both companies have agreed to buy back the 53.3 million Roche shares held by Novartis. The unbundling has a transaction volume of around 19 billion Swiss francs, as both companies announced on Thursday.
Roche intends to destroy the repurchased shares. This will increase the influence of the heirs of the Roche founding families: The share of voting rights in the family pool will increase from currently almost 50 percent to more than 67.5 percent.
“After more than twenty years as a Roche shareholder, we have come to the conclusion that the time has come to monetize our stake,” says Novartis CEO Vas Narasimhan. The transaction is in line with the company’s strategy, which wants to focus on innovative pharmaceuticals.
Novartis acquired the Roche stake between 2001 and 2003 for a total amount of approximately five billion US dollars as a long-term financial investment. He started at Roche under the then CEO Daniel Vasella, who diversified Novartis widely. For several years now, Novartis has been reversing this trend and separating from the divisions outside of the pharmaceuticals business.
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Last month Novartis announced that it was examining strategic options for its generic subsidiary Sandoz. With a separation from Sandoz, the group would be completely focused on innovative pharmaceuticals.
Novartis also does not see the financial stake in Roche as part of its core business and therefore not as a strategic investment. However, when the Sandoz plans were announced at the end of October, when a journalist asked whether Roche’s stake was also under scrutiny, Narasimhan declined to do so.
Scope for further acquisitions
The sale of Roche shares will bring Novartis a profit of approximately $ 14 billion. This gives the company scope for further acquisitions of innovative biotech companies, some of which Novartis CEO Narasimhan has already completed since taking office in 2018.
Novartis shareholders should also benefit from the sale: “We plan to use the proceeds from the transaction in accordance with our priorities in capital allocation to maximize the value for our shareholders and continue to rethink medicine,” says Narasimhan cited in Novartis’ press release. The company’s stock rose slightly in early trading.
Vontobel analyst Stefan Schneider sees the growth of Novartis under pressure due to several ongoing and pending patent expiries for various Innovative Medicine products. Therefore, the company formulated a takeover strategy according to which Novartis wants to acquire assets worth up to five percent of its market capitalization per year. “We believe the company’s balance sheet remains strong and today’s sale of its stake in Roche ensures it stays that way,” said the analyst.
Roche, on the other hand, has more room for maneuver if no competitor holds a large stake any longer. “I am convinced that this planned transaction is in the best interests of Roche and our shareholders from a strategic and economic point of view,” said Christoph Franz, Chairman of the Board of Directors of Roche.
Roche can be included in the SPI
The percentage of publicly held Roche shares, the free float, will rise from the current 16.6 percent to 24.9 percent with the loss of Novartis’ stake. This enables Roche shares to be included in the Swiss Performance Index (SPI) and possibly also in other indices, which could then give the share a boost. Even in early trading, the share rose after the share buyback was announced.
Roche is financing the transaction, which the Board of Directors has approved, with borrowed funds. The representatives of the family pool did not take part in the deliberations and the vote in the board of directors on this transaction, according to the Roche announcement.
The price per share is 356.9 Swiss francs and thus corresponds to the weighted average price of the Roche participation certificate for the last 20 trading days up to and including November 2, 2021.
The capital reduction by canceling the shares repurchased by Novartis still has to be approved by an extraordinary general meeting to be held on November 26, 2021.
More: Novartis is considering selling generics business