Novartis Sells Shares Back to Roche for $20.7 Billion

Novartis_Harold Cunningham/Getty Images

Harold Cunningham/Getty Images

For the past 20 years, Novartis has held a 33% stake in Roche, its Basel, Switzerland neighbor. Now, Novartis has divested its one-third stake to Roche for a whopping $20.7 billion.

In a brief announcement this morning, Novartis said it agreed to sell 53.3 million Roche bearer shares in a bilateral transaction to its cross-town rival. Novartis netted a price of 356.93 Swiss francs per share (about $390). The company revealed that the price reflects the volume-weighted average price of the Roche non-voting equity certificates over 20 days.

Novartis said the sale of the Roche stake consists of its strategy as a focused medicines company. It intends to use the proceeds from the sale to enhance strong returns to its shareholders.

“After more than 20 years as a shareholder of Roche, we concluded that now is the right time to monetize our investment. Today’s announcement is consistent with our strategic focus and we intend to deploy the proceeds from the transaction in line with our capital allocation priorities to maximize shareholder value and continue to reimagine medicine,” Novartis Chief Executive Officer Vas Narasimhan, M.D., said in a statement.

Novartis initially acquired its stake in Roche over a two-year period between 2001 and 2003 for $5 billion. The company said it considered the stock buy a long-term financial investment that delivered recurring earnings contribution and cumulative dividends of more than $6 billion.

As Novartis undertakes its shift in strategy, the company said the investment in Roche is no longer part of its core business and, therefore, not strategic access. Novartis will report the gain from the sale of the stake in income from associated companies of approximately $14 billion, which will be core adjusted, the company said.

In a statement this morning, Roche said the acquisition of the Novartis stake “leads to the disentanglement of the two competitors” and allows Roche to regain full strategic flexibility.

Dr. Christoph Franz, chairman of the Roche board of directors, said he is convinced the acquisition of Novartis’ stake in the company is in “the best interest of Roche and the holders of Roche equity securities from a strategic and economic perspective.” According to Franz, Roche will be even better positioned strategically in the future to provide life-saving medicines and diagnostics to people around the world as a result of this strategic development.

All holders of Roche equity securities benefit from the earnings accretion resulting from the transaction. After the repurchase of the Novartis shares is complete, Roche said it would cancel the shares. That means the percentage of shares held by the public, the so-called “free float,” will increase from 16.6% to 24.9% and will allow the shares to be included in the Swiss Performance Index and possibly in other indices.

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