Novartis to Spin Off Eye-Care Unit, Buy Back $5B in Shares

Novartis AG (NVS) shares rose 3.04% in morning trading in Zurich after the Basel, Switzerland-based pharmaceutical company announced plans to spin off its Alcon unit and repurchase up to $5 billion in stock.

The decision to turn Alcon, a manufacturer of surgical equipment to treat cataracts and contact lenses, into a separate company forms part of Novartis’s strategy to refocus on its core prescription drugs business. The firm plans to unload its eye-care unit, which is expected to list in New York and Zurich, to shareholders in the first half of 2019 and does not intend to keep any of Alcon’s stock.

“A company like ours needs to focus our capital in our area of strength which I believe is innovating world class medicines and I’d like to build our strength in digital and data technologies,” CEO Vas Narasimhan told reporters on a conference call, according to Reuters. (See also: Novartis Acquires Gene Therapy Company for $8.7B.)

During the call, Narasimhan said it was still too early to give a valuation for U.S.-based Alcon, which was acquired from Nestlè S.A. (NSRGY) for $52 billion in 2011 during former CEO Daniel Vasella’s empire-building reign.

Narasimhan’s predecessor, Joe Jimenez, who launched a strategic review into the struggling business in 2017, previously predicted that the company could fetch between $25 billion and $35 billion. Analysts at Bank Vontobel were more cautious, estimating that the firm could be worth between $15 billion and $23 billion after staging a recovery following years of falling sales and losses.

For the spin off to go ahead, it will need to win approval at a February 2019 shareholder meeting. If all goes to plan, Alcon’s current boss, Mike Bell, will become the company’s new chair while David Endicott, Alcon’s COO, will be installed as CEO.

“Our strategic review examined all options for Alcon ranging from retention, sale, IPO to spin off,” said Novartis’s Chair Joerg Reinhardt in a statement. “The review concluded that a spin off would be in the best interests of Novartis shareholders and the board of directors intends to seek shareholder approval for a spin off 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."


Accompanying the news of the spin off was an announcement that Novartis will initiate a $5 billion share buyback. The stock repurchase program is due to be completed by the end of next year and will be partly financed by the $13 billion raised when Novartis sold its stake in a consumer health joint venture to GlaxoSmithKline (GSK) earlier this year. (See also: GSK Shares Surge on $13B Buyout Deal Struck With Novartis.)

"The share buyback is fully aligned with our strategic capital allocation priorities, reflects our strict financial discipline and our confidence in future top line growth and margin expansion,” said Novartis CEO Narasimhan.

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