By Geoffrey Smith
Investing.com -- Novartis (SIX: NOVN ) stock opened modestly higher in Zurich on Thursday after the Swiss pharma company said it will spin off Sandoz, a move that will create Europe's largest generic drugs company with nearly $10 billion in annual sales.
The spin-off caps nearly a year of uncertainty over Sandoz's future after its parent announced last October that it would conduct a strategic review into the business with a view to unlocking value for shareholders. Reports, earlier in the year, of a possible buyout bid from private equity came to nothing, due in part to the heavy tax bill that an outright sale would have generated.
By contrast, the spin-off - which will leave Sandoz with a primary listing in Zurich and an ADR in New York, is expected to be tax neutral.
Novartis said the 100% spin-off "would allow Novartis shareholders to participate fully in the potential future upside of both Sandoz and Novartis Innovative Medicines."
Novartis is aiming for the higher valuation typically enjoyed by specialty pharma companies, trying to close the discount that its stock currently trades at, relative to other U.S. and European drug companies. The stock currently trades at only 8.5 times trailing 12-month earnings, while the likes of Sanofi (EPA: SASY ) (NASDAQ: SNY ) and Roche (SIX: ROG ) trade at a multiple of around 17-18. Part of that discount is due to the lack of growth at Sandoz, where sales have stagnated in the last couple of years.
Novartis intends to focus on five core areas in future: hematology, cancers, immunology, neuroscience and cardiovascular, as well as researching into gene and cell therapy.
It expects the deal to close in the second half of 2023.
By 05:00 ET (09:00 GMT), Novartis stock was up 0.8% in Zurich.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.