Novartis Announces Intention to Spinoff Alcon Into Standalone Company
After months of speculation, Novartis confirmed on Friday its intention to spinoff Alcon into a separately-traded standalone company. The major transaction would enable Novartis to focus on bringing new drugs to market, while allowing Alcon to focus on its core offerings in the surgical and vision care fields.
The decision is the latest big strategic move by new Chief Executive Vasant Narasimhan, MD, who has pledged to refocus Novartis on drug development after taking over the CEO role earlier this year.
In 2011, Novartis completed its purchase of Alcon, which was acquired in stages from Nestlé in a deal more than $50 billion. The deal was led by Daniel Vasella, who presided over the creation of Novartis in 1996 and served as CEO until 2010. But earnings at the eye care unit underperformed and Mr. Vasella’s successor, Joe Jimenez, said last year that the company was considering all options, including a sale or spin-off. But recently, sales growth at Alcon has picked up, providing time for Novartis to consider all options. Novartis had previously said that Alcon could be attractive to investors with a valuation ranging from $25 billion to $35 billion. On Friday in a note to clients, Stefan Schneider, an analyst at Bank Vontobel AG, valued the spinoff at $15 billion to $23 billion.
On Friday, Novartis also announced that it will initiate a share buyback of up to $5 billion to be executed by the end of 2019. It will use proceeds from the $13 billion sale of its stake in a consumer-health joint venture with GlaxoSmithKline, announced in March, to repurchase as much as $5 billion in shares.
“Our strategic review examined all options for Alcon ranging from retention, sale, IPO to spinoff,” Joerg Reinhardt, Chairman of Novartis, said in a company news release. “The review concluded that a spinoff would be in the best interests of Novartis shareholders and the Board of Directors intends to seek shareholder approval for a spinoff at the 2019 AGM. This transaction would allow our shareholders to benefit from potential future successes of a more focused Novartis and a standalone Alcon, which would become a publicly traded global medtech leader based here in Switzerland.”
When Novartis acquired Alcon, the business included surgical, vision care, and ophthalmic pharmaceuticals. In January 2016, Novartis began the process of creating two businesses with the transfer of Alcon’s ophthalmic pharmaceuticals to the Novartis Innovative Medicines Division. The ophthalmology pharmaceuticals business will continue to develop as part of Novartis, with 2017 sales of $4.6 billion and the potential blockbuster medicine RTH258 (brolucizumab) in development for neovascular AMD and diabetic macular edema. The Alcon Division is now focused on surgical and vision care, and continues to be a leader in eye care devices.
“We continue to execute our strategy to focus Novartis as a leading medicines company. Alcon has returned to a position of strength and it is time to give the business more flexibility to pursue its own growth strategy as the world’s leading eye care devices company,” Dr. Narasimhan said in the news release. “We will work to ensure a smooth transition for Alcon and Novartis associates while preparing for the launch of RTH258 and building our leading ophthalmology pharmaceuticals business.”
As part of the spinoff, Mike Ball will become Chairman-designate of Alcon, effective July 1, 2018, reporting to Dr. Narasimhan. Mr. Ball will focus on preparing Alcon for the intended spin. In addition, he will start the process of recruiting a board of directors for Alcon and meeting Novartis shareholders, and other potential investors, in preparation for a potential spinoff. If Alcon becomes an independent company, Mr. Ball would become Chairman of the Alcon board of directors. In order to focus fully on the Alcon separation, Mr. Ball will step down from the Executive Committee of Novartis on July 1, 2018.
David Endicott, Chief Operating Officer of Alcon since July 2016, will be promoted to CEO of Alcon, also effective July 1, 2018. In light of the potential spinoff, Mr. Endicott will not become a member of the Executive Committee of Novartis. He will also report to Dr. Narasimhan until the potential spinoff. Over the coming weeks, Mr. Ball will hand over operational management responsibilities to Mr. Endicott.
Mr. Endicott previously held senior leadership positions with Allergan and Hospira.
“This promises to be the beginning of an exciting new chapter for everyone associated with Alcon,” Mike Ball, CEO of Alcon, said in a company news release. “The planned spinoff will be key to strengthening our leadership in the large, attractive and growing global eye care devices market. As Chairman-designate, I look forward to working closely with David Endicott and the entire team at Alcon to deliver continued innovation for our customers and patients, while creating shareholder value through long-term, sustainable growth.”
If the Alcon spinoff is completed, it would create a new Switzerland-based company with global scale and reach comprising more than 20,000 employees, with around $7 billion in 2017 sales. While based in Switzerland, its main operations will continue to be in Fort Worth, Texas.
Actions started earlier this year to make Alcon an operationally autonomous medical devices business will continue in preparation for a spinoff.
In the event that all approvals are secured, the planned spinoff is expected to be completed in the first half of 2019.