After 20 years, Novartis will no longer own one third of Roche’s shares after the two Swiss pharma giants agreed to a transaction worth USD 20.7 billion. While Roche touted the deal as the regaining of “full strategic flexibility”, Novartis argued that it was the right time to “monetize” its investment into 33 percent of Roche in 2001.


The transaction, if approved by the two companies’ respective boards, will see Roche repurchase one third of its shares from Novartis, something they described as the “disentanglement of two competitors.” After the transaction, Roche intends to cancel the shares, resulting in two big changes: the percentage of shares held by the public will increase from 16.6 percent to 24.9 percent, and the descendants of company founder Fritz Hoffmann-La Roche will now have a majority stake in the company (67.5 percent).


Christoph Franz, chairman of the board of directors of Roche, said in a press release that he was convinced that the deal is in the best interest of the company and its equity holders “from a strategic and economic perspective,” and will result in a better strategic position to provide life-saving medicines and diagnostics. The transaction sent Roche shares to a record high.


According to a Roche spokesperson, the company’s balance sheet remained strong after the deal. “We can continue our M&A strategy as before, there are no limitations there.”


Standing on the other side of the transaction, Vas Narasimhan, CEO of Novartis, explained that after two decades of being shareholders in Roche, the company concluded that it was the right time to “monetize” their investment, that it was consistent with their “strategic focus,” and that the use of the proceeds would be in line with their priority to enhance strong returns to shareholders.


While the investment ended up being a sound investment decision for Novartis from a financial perspective – an annualized return of 10.2 percent – the latest development has been described as Roche extricating itself from “ownership ties to a major competitor with strategic vetoing power, though [Novartis] has kept a passive role in the face of powerful Roche family shareholders.”


Reuters reported that Novartis’ involvement started in 2001, “when Swiss activist investor Martin Ebner, known for orchestrating the merger that created banking giant UBS, offered his Roche stake to its cross-town rival out of frustration over rebuffed proposals. Ebner at the time had amassed the holding in Roche to push for strategic change but ran into opposition from the founding families that control the group.”


The founding families that opposed Ebner are the apparent winners of the repurchase, which is perhaps why Roche emphasized that the family pool that will see its voting shares increase to over two thirds was not involved in striking the agreement.


Under Swiss rules, anyone who already owns more than a third of a Swiss company and then raises their stake to more than 50 percent must make an offer for all the listed shares, but the family requested an exemption, which was granted by the Swiss Takeover Board. “The pool of shareholders neither initiated nor negotiated the transaction,” the board said.