Novartis to sell its Roche stake worth $21bn
Swiss drugmaker Novartis is to sell its stake in domestic rival Roche, bringing an end to a two-decade-old investment now worth $21bn.
Roche will repurchase the roughly one-third voting stake that Novartis holds in its competitor, which it began building in 2001 and cost a total of $5bn.
Novartis’s chief executive Vas Narasimhan said in a statement on Thursday that the decision to offload the stake was “consistent with our strategic focus”, and that the drugmaker planned to deploy the proceeds to “continue to reimagine medicine”.
The investment had yielded dividends of more than $6bn, Novartis said.
In a separate statement, Roche said the transaction would mean “the disentanglement of the two competitors”, which are both based in the Swiss city of Basel, and allow it to “regain full strategic flexibility”.
The financial tie-up had kept two of the world’s biggest pharmaceutical companies by revenues closely linked, though Novartis did not hold a seat on the board at Roche. A person familiar with the matter said Novartis “never had the ability to influence decision making”, and that from “an operational point of view it [the stake] never changed anything”.
Novartis approached Roche “weeks ago” about a deal, this person said. “We were not expecting it, it came to us as a surprise.”
Novartis had sought a higher price, the person said, adding there had been “a couple of rounds of negotiation” before a deal was settled and approved by the Roche board late on Wednesday.
Roche said it would use debt to fund its repurchase of the 53.3m bearer shares that Novartis holds. The equity stake will be cancelled, pushing Roche’s free float to 24.9 per cent, dependent on shareholder approval, set to come later this month.
Roche’s chair Christoph Franz said that following the deal, the company would be “better positioned strategically in the future to provide life-saving medicines and diagnostics to people around the world”.
Narasimhan has sought to refocus Novartis since taking the helm in 2018, spinning off its eye-care unit and last week unveiling a strategic review of its generics division Sandoz, which could include a sale. The company has said it will provide an update by the end of next year. Big pharmaceutical groups more broadly have been sharpening their focus on higher-grossing drugs, disposing of consumer healthcare units and other assets.
The deal will not lead to a change of control at the company, with the voting power of the Hoffman-La Roche family pool increasing to about 67.5 per cent.
Jefferies analysts said they viewed the deal as positive for both companies, boosting Roche’s earnings per share by about 7 per cent and helping sustain profit growth next year, when Covid-related sales of drugs and diagnostics could ebb. For Novartis, they said the sale would further simplify its structure, paving the way for other potential acquisitions.
Novartis started building its stake when it approached Roche in the early 2000s over a possible merger, pushed by then-Novartis chief Daniel Vasella, but was vetoed by the Hoffman-La Roche family that controls Roche.
“It was a big deal for Roche,” the person familiar with the matter said. “It doesn’t happen every day a rival comes in and says it wants to buy you. But it [takes] two to tango.”
SoftBank this year acquired a stake worth about $5bn in Roche.
Shares in the Zurich-listed companies moved higher on the news. Novartis ticked up 0.1 per cent after gaining 1.4 per cent earlier, while Roche added 2.6 per cent, reaching record highs.