Novartis To Spin Off Eye-Care Division Alcon; Initiates Share Buyback of up to $5 Billion
Novartis announced that it plans to spin off Alcon, its eye-care division, into a stand-alone company. The company is also planning to initiate a share buyback of up to $5 billion to be executed by the end of 2019.
“Our strategic review examined all options for Alcon ranging from retention, sale, IPO [initial public offering] to spinoff,” said Joerg Reinhardt, Chairman of Novartis, in a June 29, 2018 company statement. “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 [Annual General Meeting]. This transaction would allow our shareholders to benefit from potential future successes of a more focused Novartis and a stand-alone Alcon, which would become a publicly traded global medtech leader based here in Switzerland.”
If the Alcon spinoff is completed, it would create a new Switzerland-based company with more than 20,000 employee with approximately $7 billion in 2017 sales. Fort Worth, Texas will continue to be a key location for Alcon, according to Novartis. The company said that actions started earlier this year to make Alcon an operationally autonomous medical-devices business will continue in preparation for a spinoff.
Completion of the transaction is subject to general market conditions, tax rulings and opinions, final Board of Director’s endorsement and shareholder approval at the company’s 2019 Annual General Meeting in line with Swiss corporate law. Required information and consultation of affected employees and employee representatives is planned for the second half of 2018. In the event that all approvals are secured, the planned spinoff is expected to be completed in the first half of 2019.
When Novartis acquired Alcon in 2011, 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 be part Novartis. It had 2017 sales of $4.6 billion. A key product is brolucizumab, which is in development for treating neovascular age-related macular degeneration and diabetic macular edema and slated by some as a potential blockbuster. The Alcon Division is now focused on surgical and vision care.
Mike Ball, formerly Alcon’s Chief Executive Officer (CEO), became Chairman-designate of Alcon, effective July 1, 2018, reporting to Vas Narasimhan, CEO of Novartis. Mr. Ball will focus on preparing Alcon for the intended spinoff. In addition, he will start the process of recruiting a Board of Directors for Alcon and for meeting with 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. Mr. Ball stepped down from the Executive Committee of Novartis on July 1, 2018.
David Endicott, Chief Operating Officer of Alcon since July 2016, was 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 Novartis Executive Committee. He will report to Vas Narasimhan until the potential spinoff. Over the coming weeks, Mr. Ball will hand over operational management responsibilities to Mr. Endicott.
In addition to its spinoff plans, Novartis plans to initiate a share buyback of up to $5 billion. Novartis says this action is planned to be largely funded through proceeds of Novartis’ divestment to GlaxoSmithKline (GSK) of the companies’ consumer health joint venture stake. In June 2018, GSK completed its acquisition of Novartis’ 36.5% stake in the companies’ consumer healthcare joint venture for $13 billion, which grants GSK full ownership of the business.
“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 Vas Narasimhan, CEO of Novartis, in a June 29, 2018 company statement.