End of integration: Pharmaceutical companies Roche and Novartis go their separate ways

The pharmaceutical company Novartis has held a stake in its local rival Roche for more than 20 years.

But now this interdependence ends.

Novartis is selling its Roche bearer shares, which make up one third of the voting capital, to Roche for 19 billion Swiss francs.

The two companies announced this on Thursday.

In the past, there was always speculation about what Novartis might be up to at and with Roche. But when the quarterly figures were presented last week, Novartis boss Vasant Narasimhan did not let a syllable hint in a conference call with journalists that a sale was on the agenda. According to information from the FAZ, Novartis approached Roche in September with the request to sell the block of shares.

The time has now come to monetize the stake, Narasimhan justified the move.

This corresponds to the company's strategic focus.

Under his leadership from Narasimhan, Novartis focuses on innovative drugs and therapies that require billions of dollars to develop every year.

Only recently, Narasimhan announced the separation of the business with patent-free copycat products (Sandoz).

Novartis recently treated its involvement with Roche as a pure financial investment that was not part of its core business.

The block of shares meant a lack of freedom of movement

For Roche, on the other hand, a long phase of uncertainty is ending. Having the big competitor and local rival on the back of the neck as a package shareholder had not appealed to either the management or the dominant family shareholders. The former Novartis boss Daniel Vasella once put together the package in the hope of getting ranks with Roche. But this never fell on fertile ground with the rival.

The companies continued to operate completely independently of one another.

At the latest after Vasella's departure in 2013, the question arose what Novartis would do with the investment.

Since then, there has been a risk that Novartis could sell the package to another, perhaps even less popular, investor.

In this sense, the statement of Roche Chairman of the Board of Directors Christoph Franz should be understood, who is quoted in the press release with the following sentence: “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. "

By separating the two, earnings per share will increase

Roche will destroy the 53.3 million Roche shares after the buyback. This leads to a consolidation of profits for all Roche shareholders, or in other words: Earnings per share increase. At the same time, the proportion of family shareholders increases. The Hoffmann, Oeri and Dusmalé families, all of whom are descendants of the company's founder Fritz Hoffmann, currently hold 50.1 percent of the voting rights. 45 percent of these are bundled in a pool.

The share of the voting rights of the family pool will increase to 67.5 percent through the transaction without any action on the part of the family pool. As Roche emphasizes, the representatives of the family pool did not take part in the deliberations and voting in the Board of Directors on this matter. The transaction, which still requires the approval of an extraordinary general meeting, does not result in a change of control because the founding families already had a majority in the general meeting.

The families therefore do not have to make a takeover offer to the other owner shareholders.

The Swiss Takeover Commission has confirmed this to the family pool.

Novartis acquired the Roche stake between 2001 and 2003 for a total of $ 5 billion.

From this, the company has received more than 6 billion dollars in dividends over the years.

Over the holding period of the investment, this results in an annualized return of 10.2 percent in dollars and 6.6 percent in Swiss francs, Novartis calculates.

Novartis now has scope for acquisitions

Novartis expects a profit of around $ 14 billion from the sale of the stake.

It can be assumed that Narasimhan is putting some of this money into company acquisitions to fill the pipeline with new, promising drugs.

In this regard, the group is under pressure to succeed because the patents of some successful drugs are running out.

Roche pays CHF 357 per share from the Novartis package.

This corresponds to the average price, weighted by the trading volume, of the Roche participation certificate for the last 20 trading days up to November 2nd.

Roche wants to finance the billion dollar purchase through loans.

The Management Board is sticking to the previous financial targets for the full year.

He also continues to plan to increase the dividend for 2021.