Novartis could refuel M&A machine with $14 bln Roche stake sale (updated)

Roche Holding AG

25/04/2016 10:42

* Novartis discussing options for sale with banks 
    * Divestment of near $14 bln stake not imminent - sources 
    * Novartis could use cash to buy new products 
 
 (Adds analyst comment, background) 
    By Ben Hirschler and Joshua Franklin 
    LONDON/ZURICH, April 25 (Reuters) - Novartis  NOVN.S  is 
discussing options with banks for selling its near $14 billion 
stake in rival Roche  ROG.S , potentially providing cash for new 
deals, though a sale is not imminent, according to two people 
familiar with the situation. 
    Novartis built up its one-third stake in Roche's voting 
stock  RO.S  between 2001 and 2003 under former chairman and CEO 
Daniel Vasella, as a basis for a possible merger that never 
happened. 
    Ever since Vasella's departure in 2013 there has been 
speculation Novartis would sell its holding, equivalent to 
around 6 percent of all Roche shares, ending a years-long 
standoff between the two Swiss rivals. 
    Pushing ahead with a sale now could make sense for current 
Novartis Chief Executive Joe Jimenez, who is under pressure to 
improve growth after disappointments with the company's eyecare 
unit Alcon and new heart drug Entresto.  urn:newsml:reuters.com:*:nL5N17O0JY 
    "Sooner or later the stake will be sold and Novartis is 
talking to banks about how it could be done. But nothing is 
imminent," one source said. 
    He added a so-called order book process with selected 
investors would probably be the "cleanest" process for divesting 
the stake, which is worth some 13.4 billion Swiss francs ($13.7 
billion). 
    The second source said Novartis had shown increased interest 
in planning for such a sale in recent weeks. 
    Novartis, which describes its one-third stake in Roche's 
voting stock as a financial investment with a strategic 
component, declined to comment. Roche also declined to comment.  
    Industry analysts said Novartis needed to revitalise its 
healthcare business following recent difficulties, which could 
explain the decision to look at the Roche investment as a way to 
raise cash to acquire new products. 
    "Novartis is in a time of need, having had setbacks with 
both Alcon and Entresto, and investor sentiment is languishing," 
said Bernstein analyst Tim Anderson, who sees acquisitions in 
the biotech or ophthalmology fields as "distinctly possible". 
    In the past, Jimenez has discussed the idea of selling the 
Roche stake but, in an interview with Reuters three years ago, 
he said he would want a premium price, reflecting the difficulty 
of recreating such a large position in the open market. 
    That premium demand, however, seems to have fallen by the 
wayside, since Novartis is now investigating having banks 
collect purchase offers within a predefined price range from 
selected investors. 
    The idea of Novartis selling the stake in this way was first 
reported by the weekly Sonntagszeitung newspaper. 
    Analysts have suggested in the past that one option for 
unwinding the holding would be for Roche to buy the Novartis 
stake as part of a share repurchase programme. Roche, however, 
has shown little interest in this idea and has traditionally 
viewed share buybacks as a low priority.  
    Roche bearer, or voting, shares slipped 0.8 percent on 
Monday while its most widely traded equity was off 1 percent by 
0915 GMT. Novartis stock was flat.  
    Members of the Hoffmann-Oeri family still hold a majority of 
Roche's voting stock 
    ($1 = 0.9752 Swiss francs) 
 
 (Reporting by Ben Hirschler in London and Joshua Franklin in 
Zurich; Editing by Mark Potter) 
 ((zurich.newsroom@thomsonreuters.com; +41 58 306 7336;)) 
 
Keywords: ROCHE M&A/NOVARTIS