Novartis AG, a Swiss-American pharmaceutical conglomerate, today announced its plans to spin off its Sandoz business entirely, creating a new company on its own. The goal of the spin-off is to create the largest European generics company and maximize shareholder value. Novartis claims that the spin-off would provide Novartis stockholders with a fair shot at the future growth of both Sandoz and Novartis Innovative Medicines.
Transaction timeframes and terms
According to a statement released by the corporation, the split will be finalized during the second half of 2023. The statement said that after a thorough analysis, a strategic review came to the conclusion that it would be in the best interest of shareholders to spin off Sandoz to completely as a separate company. Earning $9.69 billion in 2020, the division contributed over 18% to Novartis’ total revenue of $52.9 billion. This means that the proposed spinoff is delicate and puts a lot on the line for both companies.
The current objective is to establish Sandoz as a Swiss corporation and list it on the SIX Swiss Exchange. In addition, it plans to launch an American Depositary Receipt (ADR) scheme in the United States. Market circumstances, tax rulings and views, final board endorsement, and shareholder approvals are key determinants of whether the transaction will go through. However, the transaction will likely be tax neutral for Novartis in the long run.
What’s on the line for Novartis?
Despite Sandoz’s $9.6 billion in sales in 2021, Novartis predicted in July that its profits would remain steady at best. Also, Novartis is in the midst of a reorganization program that would eliminate as many as 8,000 positions worldwide. That is equivalent to 7.4% of the company’s employees. Its ultimate goal is to raise its financial profile and increase its return on capital. That will enable it to have an edge as it competes with other innovative pharmaceutical firms.