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Biotech rumor mills has it that Novartis Will Sell Its $14.1 Billion Stake

Posted on 18 December 2013

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Biotech rumor mill has it that since Roche Share Discount Widens on Bet Novartis to Sell Stake for $14.1 billion.

The record discount in Roche Holding AG (RO) voting shares signals increasing speculation cross-town rival Novartis AG (NOVN) will sell its $14.1 billion stake into the market.

Traders have pushed Roche’s voting shares to the lowest price versus its non-voting stock since at least 1989, a sign they are preparing for dilution should Novartis sell its 33 percent stake in the equities, said Ben Kelly, an analyst at Louis Capital Markets. The discount is an anomaly. Over the past decade, Roche’s voting shares have traded 14.66 Swiss francs higher on average, data compiled by Bloomberg show.

Analysts who monitor changes in the price relationships between securities say the two-year rally that has restored $4.67 trillion to the Stoxx Europe 600 Index could persuade Novartis to part with the stake that it has resisted selling. While Chief Executive Officer Joe Jimenez told investors last month the market undervalues the shares, their 7 percent drop this month shows the risk of sitting on stock.

“There’s definitely pressure on him to do something,” said Michael Leuchten, an analyst at Barclays Plc who rates Roche overweight, the equivalent of a buy, and Novartis underweight. “This stake doesn’t do anything for them. From a pure financial perspective, you would want to liquidate that stake. Investors would want them to do it.”

Unsuccessful Merger

At issue is a stake of Roche voting shares amassed by former Novartis CEO Daniel Vasella more than a decade ago as he tried unsuccessfully to convince his Basel-based competitor to merge. Roche set up a dual-class share system in 1928, allowing the owners to raise money without reducing their voting rights.

While voting shares are normally more valuable than non-voting, the advantage is diminished at Roche because the founding families own 50.1 percent of the class -- too much to be overruled, according to Peter Lampert, a Singapore-based analyst at Mawer Investment Management Ltd.

“I just don’t see the appeal of why somebody should pay a premium for those voting rights when they still don’t have control of the company,” said Lampert, whose firm oversees C$18 billion ($17 billion), including Novartis and Roche shares.

Roche voting shares climbed 15 percent above non-voting in March 2011, the highest premium since 2008, after Maja Oeri, a descendant of Fritz Hoffmann-La Roche, broke away from the founding family and said she would exercise her rights over the stock separately. That raised the possibility of a shift in control, igniting merger speculation that has since receded.

 

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