Novartis(NVS) Exploring Options To Divest $25+ Billion Eye-Care Unit

Swiss pharmaceutical giant Novartis (NVS) is considering a spin off Alcon, its surgical equipment and contact lens business. While most of its peers are busy acquiring each other, Novartis is taking a more inward-focused approach also announcing today a $5 billion share buyback.

Reporting its 2016 earnings, Novartis said:

“Novartis is considering options for the Alcon Division. The review will explore all options, ranging from retaining the business to separation via a capital markets transaction (e.g. IPO or spin-off), in order to determine how to best maximize value for our shareholders. The review will be conducted during the course of 2017 and in a manner such that Alcon Division associates can fully focus on the unit’s return to growth.

The Alcon Division comprises leading surgical and vision care (contact lens and lens care solution) businesses, both of which are leaders in their respective segments. Novartis believes that the Alcon Division is a highly attractive business, with a strong customer base and led by a strong management team. Novartis is exploring whether there are additional value-maximizing opportunities for the Alcon Division as an independent company or otherwise.”

CEO Joe Jimenez  refused to be drawn in during an interview on Bloomberg Television about whether he was already in discussions with potential buyers for Alcon.

Novartis has struggled to make progress at Alcon since acquiring it for a total of $52 billion from Nestle (NSRGY) in 2010 which also involved a well-publicised battle with minority shareholders. Net sales for the business have been in decline (-3% in 2016) and the company forecasts low single digit growth at best in 2017.

Jimenez suggested on a conference call that Alcon could be worth $25 to $35 billion and that a decision about its future will be made by the end of the year. Tim Anderson at Bernstein Research commented that a sale “will likely be well-received, and while management has previously hinted as possibly disposing of Alcon in a future year, this represents an accelerated timeline”.

Disclosure: The author holds no position in any stock mentioned