Updated to include new details of Novartis’ M&A strategy.
Novartis (NYSE:NVS) CEO Joe Jimenez’s consideration of the sale of the Alcon subsidiary has investors worried that the influx of cash – Alcon’s surgical devices and contact lens business could fetch as much as $35 billion – will result in another misguided acquisition.
The Swiss drugmaker paid $52 million for Alcon in 2011, but the division’s sales and earnings have been on the schneid for the past 2 years, prompting Jimenez to mull a sale. Also in play is a $ 14 billion stake in pharma rival Roche (PINK:RHHBY) and a $10 billion over-the-counter drug joint venture with GlaxoSmithKline (NYSE:GSK). Novartis faces a March 2018 deadline to exercise its put option for its 36.5%, with GSK said to be a willing buyer.
But the Alcon fiasco has investors chary of another big buyout.
“We would applaud selling those stakes, generally, but what do you do with that money?” Invesco Perpetual analyst Stephen Anness said. “I would be very cautious about selling stakes … in things to raise a war-chest to go and do a massive deal, only for that deal to go and be another poor deal.”
A fund manager Reuters said is among Novartis’s top-60 investors told the wire service that the Alcon stumble raises red flags about management’s ability to handle a blockbuster integration.
“A big deal might solve some of their issues, but personally I would prefer to see them doing smaller acquisitions,” the investor said. “A cash mountain of $50 billion would definitely make me nervous.”
Part of the problem for Novartis is a dearth of market-approved immuno-oncology drugs compared with rivals Roche, Merck (NYSE:MRK) and Bristol-Myers Squibb.
Jimenez has previously said that the focus is on smaller transactions of up to $5 billion, including lower-risk drug licensing deals, and on Wednesday, Jimenez reaffirmed his position.
“Obviously, there’s been a lot of speculation because that would be a lot of capital,” Jimenez said, referring to a possible sale of Alcon.
“We don’t need a big deal,” he added. “Our strategy in M&A is to do bolt-on acquisitions.”
Jimenez also said he would provide an update regarding the division by the end of this year.
Material from Reuters was used in this report.