Roche buys back voting rights from rival Novartis for $20.7 billion

ZURICH (Reuters) -Novartis AG, a shareholder in Roche for more than 20 years, said on Thursday the two Swiss drugmakers had agreed Roche would buy its nearly one-third voting stake in its cross-town rival for $20.7 billion.

FILE PHOTO: Swiss drugmaker Novartis’ logo is seen at the company’s plant in the northern Swiss town of Stein, Switzerland October 23, 2017. REUTERS/Arnd Wiegmann

The deal, which means Novartis will give up its influence over strategic decisions taken by Roche, is likely to send Roche shares higher. They were indicated to open 2.4% higher and Novartis shares 1.9% higher in pre-market trading.

Novartis has agreed to sell 53.3 million Roche bearer shares for $388.99 (356.93 Swiss francs) per share, a price that reflects the volume-weighted average of the Roche non-voting equity certificates over the 20 trading days to Nov. 2, Novartis said in a statement.

In a separate statement, Roche said it will use debt to finance the deal and plans to reduce its capital by cancelling the repurchased shares to regain “full strategic flexibility”.

Roche shareholders will vote on the plan at an extraordinary general meeting on Nov 26.

Novartis Chief Executive Vas Narasimhan said now was the right time to monetise the investment.

“Today’s announcement is consistent with our strategic focus and we intend to deploy the proceeds from the transaction in line with our capital allocation priorities,” he said.

Novartis said it will report a gain from the stake sale of approximately $14 billion. It said the investment acquired for around $5 billion in 2001 and 2003 had delivered recurring earnings contributions and cumulative dividends of over $6 billion.

Roche said all holders of Roche equity securities would benefit from the earnings accretion following the transaction. It confirmed its 2021 outlook and said it was aiming to increase its 2021 dividend.

The transaction will not result in a change of control as the founding families’ shareholder pool already held the majority of the votes, it said. Its voting power will increase to around 67.5% following the deal.

Roche said the Swiss takeover board had exempted the pool from the obligation to submit a mandatory offer. The free float will increase to 24.9% from 16.6%.

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