Novartis takes 20 per cent stake in rivals Roche

Novartis is picking up one fifth of Roche's shares [SRI] swissinfo.ch

The Basel-based Novartis drugs and health care group has announced it is buying a 20 per cent stake in its cross-city rival Roche for SFr4.8 billion ($2.8 billion). The Swiss stock market reacted positively to the news.

At close of trading on Monday, Roche’s shares had increased by 5.7 per cent, to SFr152, while Novartis’ shares had gone up by 2.1 per cent, to just over SFr68.

Novartis announced it would pay Swiss financier Martin Ebner’s BZ Group SFr151 per share for the 20 per cent stake.

Novartis’ chairman and chief executive, Daniel Vasella, described the purchase on Monday as a “long-term financial investment that is also strategic in nature.”

Vasella assured the markets that no cooperation had previously been discussed with Roche but he still hoped to explore collaboration with Roche over time.

The deal between Novartis and the BZ Group was finalised over a very short period of time, Novartis spokesman Mark Hill told swissinfo.

“Martin Ebner wanted to sell his shares so he approached us and this all happened last week,” said Hill. “We think we’re the most logical buyers and with Roche’s share price so low compared to the rest of the sector we think this will be a good long term financial move.”

Roche spokesman Daniel Pillar told swissinfo that the news was something of a surprise.

“We were informed on Friday evening,” explained Pillar. “I think it wasn’t a surprise that BZ was selling its stake, but we didn’t know that Novartis would be the new owner.”

Roche has been struggling to boost business in its key pharmaceutical division. The company said only last week that it was looking to reduce costs in the future. The pharma unit has suffered from disappointing sales and the development of its product pipeline has also suffered a series of setbacks.

Roche said it would continue its established strategic and operational direction and denied that the deal would lead to a full-blown merger between the two companies.

“We have a change here in one of the shareholders. Apart from that, nothing changes for us,” said Roche chairman Franz Hummer.

Hummer said Roche would cooperate with Novartis where this made sense, adding that it would treat its rival-turned-shareholder as it does other potential partner companies in the industry.

Roche noted that the arrival of Novartis as a major investor did not change the current majority holding in which the Hoffman and Oeri families control Roche, even though they own less than 10 per cent of the company’s equity by market capitalisation.

Despite the caution from both Roche and Novartis regarding the possibility of a merger this latest move has fuelled talk of a fusion between the two companies.

Zurich Cantonal Bank pharmaceutical sector analyst Meinrad Gyr told swissinfo that a merger is possible and that such a move would lead to job losses.

“It could lead to a takeover or a merger of the two groups’ pharmaceutical businesses,” explained Gyr. “It could also lead to a separation of Roche’s diagnostic business, maybe as a company of its own that could be controlled by the group’s founding families.”

Ebner’s sale of his stake in Roche comes after he complained in the past of Roche’s lack of strategic focus.

“We had repeatedly said that we were not satisfied with Roche and that the Roche board’s actions were not based on good corporate governance. Martin Ebner had already last year said he could sell Roche shares,” said BZ Group spokesman Ralph Stadler.

swissinfo with agencies